Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).
Aspect
Explanation
Definition
A Cloud Business Model refers to the strategy and approach used by organizations to offer cloud-based services and generate revenue. Cloud computing allows businesses to deliver various services over the internet, from infrastructure and platform services to software and applications. These models define how cloud services are structured, priced, and provided to customers. There are several cloud business models, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS), and more. Each model has distinct characteristics and revenue strategies.
Key Concepts
– Service Delivery Models: The primary cloud service delivery models include IaaS, PaaS, and SaaS, each offering different levels of service and management responsibilities. – Deployment Models: Cloud services can be deployed in public, private, hybrid, or multi-cloud environments, depending on security and control requirements. – Pricing Models: Cloud providers often employ various pricing models, such as pay-as-you-go, subscription-based, or usage-based pricing. – Scalability: Scalability is a key concept, allowing users to adjust resources as needed, minimizing costs and optimizing performance. – Security and Compliance: Ensuring data security and compliance with regulations is critical in cloud business models.
Characteristics
– Elasticity: Cloud resources can be easily scaled up or down based on demand, providing cost efficiency and flexibility. – Resource Pooling: Cloud providers share and allocate resources across multiple users, optimizing resource utilization. – Self-Service: Users can provision and manage resources independently, reducing reliance on IT support. – Pay-Per-Use: Many cloud models follow a pay-per-use or subscription-based pricing structure, enhancing cost control. – Global Reach: Cloud services are accessible globally, enabling businesses to expand their reach.
Implications
– Cost Savings: Cloud models can lead to cost savings by eliminating the need for physical infrastructure and reducing operational expenses. – Scalability: Organizations can scale resources up or down easily to meet changing business demands. – Innovation: Cloud services enable rapid innovation and experimentation, fostering business agility. – Global Expansion: Cloud-based solutions facilitate global market expansion and access to a broader customer base. – Data Security: Ensuring data security and compliance is essential to maintain trust and protect sensitive information.
Advantages
– Cost-Efficiency: Cloud models often reduce capital expenses by replacing them with predictable operational costs. – Scalability: Businesses can scale resources as needed, preventing over-provisioning and underutilization. – Flexibility: Cloud solutions offer flexibility to adapt to changing market conditions and business requirements. – Rapid Deployment: Cloud services can be deployed quickly, reducing time-to-market for new products and services. – Accessibility: Cloud solutions provide remote accessibility, enabling collaboration and remote work capabilities.
Drawbacks
– Security Concerns: Data security and privacy remain a significant concern, especially for sensitive information stored in the cloud. – Dependency on Providers: Organizations may become dependent on cloud providers, potentially facing challenges when migrating services. – Compliance Challenges: Meeting industry-specific compliance and regulatory requirements can be complex in the cloud. – Cost Management: Without proper monitoring and governance, cloud costs can escalate unexpectedly. – Downtime and Reliability: Reliability issues or downtime with cloud services can impact business operations.
Applications
– Web Hosting: Many websites and web applications are hosted in the cloud for scalability and reliability. – Data Storage: Cloud storage solutions are used for data backup, archiving, and sharing. – Software Delivery: Software companies offer SaaS products accessible via the cloud, eliminating the need for local installations. – IoT Solutions: Internet of Things (IoT) devices often leverage cloud infrastructure to collect and process data. – Big Data Analytics: Cloud platforms are popular for running big data analytics and processing large datasets.
Use Cases
– Startup Launch: Startups often use cloud services to quickly launch products and scale without heavy upfront infrastructure costs. – E-commerce: E-commerce businesses use cloud-based platforms to handle high traffic loads during peak seasons. – Data Backup: Organizations of all sizes employ cloud storage for secure data backup and disaster recovery. – Enterprise Collaboration: Large enterprises utilize cloud-based collaboration tools for remote work and global team collaboration. – Analytics Projects: Companies running data analytics projects benefit from the scalability and computing power of the cloud.
In 2006, the term “cloud computing” picked up, as tech giants like Amazon and Google were vastly investing in bringing applications on the web; with fast deployment and continuous updating, this model became viable not only at enterprise but also at the consumer level. And it gave birth to new business models built on top of the cloud, such as IaaS, PaaS, and SaaS (Image Source: Google Ngram)
Back in August 2006, at Search Engine Strategies Conference, in a conversation with Eric Schmidt hosted by Danny Sullivan, the former Google’s CEO pointed out,
What’s interesting [now] is that there is an emergent new model, and you all are here because you are part of that new model. I don’t think people have really understood how big this opportunity really is. It starts with the premise that the data services and architecture should be on servers. We call it cloud computing – they should be in a “cloud” somewhere. And that if you have the right kind of browser or the right kind of access, it doesn’t matter whether you have a PC or a Mac or a mobile phone or a BlackBerry or what have you – or new devices still to be developed – you can get access to the cloud. There are a number of companies that have benefited from that. Obviously, Google, Yahoo!, eBay, Amazon come to mind. The computation and the data and so forth are in the servers.
And he continued:
And so what’s interesting is that the two – “cloud computing and advertising – go hand-in-hand. There is a new business model that’s funding all of the software innovation to allow people to have platform choice, client choice, data architectures that are interesting, solutions that are new – and that’s being driven by advertising. The reason that I said “don’t bet against the Internet” is an awful lot of people are still trying to do stuff the old way. They’re still trying to build proprietary protocols, they’re still trying to not build standardized protocols. They’re still not trying to solve problems in a simple and extensible way. But when somebody does it right – let me give you the example of mashups, which are taking over the world by storm. It happens very fast. And that’s the power of the Internet.
While the term picked up traction from there, even though the term and potential of this technology were already understood in 1996, when a group of executives at Compaq already had forgone that most applications on the web of what they called “cloud computing-enabled applications.”
Even though, as we saw above, it would still take ten years, for this technology to pick up at scale. And by 2020, cloud computing would become one of the most profirable industries, and units of tech giants like Amazon (with AWS) Microsoft (with Azure), Google (with its Cloud), and IBM.
Not only that, cloud computing enabled the birth of an entrepreneurial ecosystem, and hundreds of companies, both in B2B and B2C that leveraged the cloud to build valuable products and services.
Consumers’ companies like Netflix, Spotify, YouTube are all built upon the cloud. Other enterprise-based organizations as well.
IaaS: in the infrastructure as a service, the cloud provider usually offers networking, storage, hosting, and virtualization. In this way, the customer can leverage a cloud-based infrastructure without building it internally, therefore avoiding the cost, complexity, and time required with that. In a way, the IaaS customer can leverage a complex infrastructure without building and maintaining it and using it on demand.
PaaS: in the platform as a service, the cloud provider also offers the platform to build applications for customers/users. Therefore, users will have all the tools needed to build these applications. Also, the customer gets a whole set of tools on-demand, without having to build them, while the client will manage those applications and related data.
SaaS: in the software as a service, the provider offers also applications and data management, so that the final customer can get service on demand.
Technological Infrastructure
Depending on the type of cloud-based business model, the company might have a complex or less technological infrastructure or platform. Perhaps, a SaaS service might well be built on top of existing IaaS and PaaS. Therefore, only do the part related to the UI and UX development for final users/customers.
Other cloud-based infrastructures can be extremely complex. Companies like Amazon AWS, Google Cloud, Microsoft Azure, and IBM Cloud (which are the major players) took years to develop and enabled an entrepreneurial ecosystem of companies built on top of them. A whole set of SaaS companies are built on top of those cloud providers.
Commercial Use Cases
The commercial use cases covered by cloud-based business models is vast. From B2B/Enterprise companies offering big data analysis, business intelligence, inventory management, and much more, to B2C companies offering streaming services, social media platforms and more to final customers.
Revenue Models
While business models built on top of the cloud are usually driven by a subscription (as they run as an on-demand service), in reality there are several revenue streams used:
Subscription-based.
Consumption-based (pay-as-you-go).
Advertising-based.
Hybrid models.
Case Studies
IaaS (Infrastructure as a Service):
DigitalOcean: Known for its simplicity, DigitalOcean provides cloud services that help developers deploy and scale applications that run simultaneously on multiple computers.
Linode: Offers virtual servers and related services for developers.
Vultr: Provides a wide array of cloud services from compute instances to block storage with a focus on simplicity and low-cost solutions.
Alibaba Cloud ECS: The computing service of Alibaba Cloud that offers elastic and secure virtual cloud servers.
PaaS (Platform as a Service):
Red Hat OpenShift: A Kubernetes container platform that provides developer and operational tools.
Oracle Cloud Platform: Offers services in various domains like database management, application development, and analytics.
Engine Yard: A cloud-based, managed, Ruby on Rails platform.
Jelastic: A cloud platform that provides PaaS and CaaS services for hosting providers, ISVs, telecommunication companies, and enterprises.
AppFog: A PaaS solution that provides a platform for the deployment, scaling, and management of cloud applications.
SaaS (Software as a Service):
Trello: A web-based Kanban-style list-making application.
Slack: A communication platform that provides IRC-style features, including persistent chat rooms (channels) organized by topic, private groups, and direct messaging.
Asana: A web and mobile application designed to help teams organize, track, and manage their work.
Shopify: A commerce platform that allows anyone to set up an online store and sell their products.
Zoho: Offers a suite of online productivity tools and SaaS applications.
Evernote: An app designed for note-taking, organizing, task management, and archiving.
HubSpot: Provides software for inbound marketing, sales, and customer service.
Cloud Business Models Types
Cloud Business Model/Strategy
Description
Key Insights
Infrastructure as a Service (IaaS)
Provides virtualized computing resources, such as servers, storage, and networking, on a pay-as-you-go basis
Allows organizations to scale resources up or down as needed without the overhead of physical infrastructure.
Platform as a Service (PaaS)
Offers a platform for developing, deploying, and managing applications without the complexity of managing infrastructure
Accelerates application development and reduces the burden of server management.
Software as a Service (SaaS)
Delivers software applications over the internet on a subscription basis
Offers easy access to software without the need for installation, maintenance, or updates.
Function as a Service (FaaS)
Also known as serverless computing, it allows developers to run code in response to events without managing servers
Focuses on executing code functions, ideal for microservices and event-driven applications.
Cloud Service Reselling
Involves reselling cloud services from major providers, often with added value through customization or management
Offers businesses an opportunity to become cloud service brokers and add their expertise.
Cloud Marketplace
Provides a platform for discovering, purchasing, and deploying cloud services and applications from various providers
Simplifies the procurement and management of cloud solutions.
Hybrid Cloud Strategy
Combines public and private cloud environments, allowing data and applications to move between them
Provides flexibility, security, and cost optimization by choosing the right cloud for each workload.
Multi-Cloud Strategy
Involves using multiple cloud providers to avoid vendor lock-in and leverage best-of-breed services
Offers redundancy, risk mitigation, and access to diverse cloud capabilities.
Cloud Integration Services
Focuses on connecting and integrating various cloud services and on-premises systems
Ensures seamless data flow and process automation across a hybrid IT environment.
Cloud Migration Services
Assists organizations in moving their existing IT infrastructure and applications to the cloud
Requires careful planning, assessment, and execution to minimize disruptions.
Cloud Security and Compliance Services
Provides tools and services to secure cloud environments and meet regulatory requirements
Addresses concerns related to data protection, access control, and compliance.
Cloud Managed Services
Offers ongoing management and optimization of cloud resources and applications
Allows organizations to offload the operational burden of cloud management.
Cloud Cost Management
Focuses on monitoring, optimizing, and controlling cloud costs to avoid overspending
Essential for organizations to manage cloud budgets effectively.
Cloud Data Analytics Services
Utilizes cloud resources for big data processing, analytics, and machine learning
Provides scalable and cost-effective solutions for data-driven insights.
Cloud Disaster Recovery
Ensures business continuity by replicating critical data and applications to the cloud
Mitigates the impact of unexpected outages or disasters.
Cloud DevOps and CI/CD
Combines cloud resources with DevOps practices for continuous integration and continuous delivery
Streamlines application development, testing, and deployment.
Cloud AI and Machine Learning
Leverages cloud-based AI and ML platforms for data analysis, automation, and prediction
Enables organizations to harness the power of AI without extensive infrastructure investments.
Cloud Edge Computing
Extends cloud capabilities to the edge of the network, closer to where data is generated
Reduces latency and improves real-time processing for IoT and edge applications.
Cloud IoT Solutions
Offers cloud platforms and services for managing and analyzing data from connected devices
Supports IoT applications and enables data-driven decision-making.
Key Highlights
Origin Story: The term “cloud computing” gained prominence in 2006 when tech giants like Amazon and Google invested heavily in bringing applications to the web, making cloud-based business models viable for both enterprises and consumers.
Eric Schmidt’s Insight: In August 2006, Eric Schmidt, former Google CEO, spoke about the emerging cloud computing model at the Search Engine Strategies Conference. He highlighted the idea of data services and architecture being on servers in a “cloud,” accessible through various devices, and how advertising was funding software innovation in this space.
Early Recognition: The concept of cloud computing and its potential was understood as early as 1996, with executives at Compaq discussing “cloud computing-enabled applications.” However, it took about a decade for cloud technology to gain widespread adoption and become a highly profitable industry by 2020.
Cloud Provider Giants: Cloud computing paved the way for major players like Amazon (AWS), Microsoft (Azure), Google (Google Cloud), and IBM to offer cloud services, becoming key units within their tech empires.
Entrepreneurial Ecosystem: Cloud computing enabled the birth of an entrepreneurial ecosystem, with numerous B2B and B2C companies leveraging the cloud to create valuable products and services. Companies like Netflix, Spotify, YouTube, and various enterprises are built upon the cloud infrastructure.
Classification of Cloud-Based Business Models:
IaaS (Infrastructure as a Service): Cloud providers offer networking, storage, hosting, and virtualization, allowing customers to utilize complex infrastructure without building and maintaining it internally.
PaaS (Platform as a Service): Cloud providers offer a platform to build applications, providing tools and resources to manage applications and related data.
SaaS (Software as a Service): Cloud providers offer applications and data management services, enabling customers to access software on demand.
Technological Infrastructure: The complexity of the technological infrastructure varies depending on the type of cloud-based business model. Some SaaS services might be built on top of existing IaaS and PaaS, while major cloud providers like AWS, Google Cloud, and Azure have extensive ecosystems and enable an entrepreneurial community.
Commercial Use Cases: Cloud-based business models cover a wide range of commercial use cases, from B2B enterprise solutions like big data analysis and inventory management to B2C services like streaming platforms and social media.
Revenue Models: While subscriptions are a common revenue model for cloud-based services, there are several revenue streams used, including consumption-based (pay-as-you-go) models, advertising-based revenue, and hybrid models combining subscriptions and pay-as-you-go billing.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.
The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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