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).
|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.
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.
Classification of Cloud-Based Business Models
Cloud-based business models are usually classified as:
- 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.
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.
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:
- Consumption-based (pay-as-you-go).
- Hybrid models.
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.|
- 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.
Read More: IaaS vs PaaS vs SaaS
Connected Business Model Types And Frameworks
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