Function-as-a-service business model

Function-as-a-service (FaaS) is a cloud solution that allows clients to execute modular pieces of code on the edge.

Understanding function-as-a-service

Function-as-a-service enables clients to execute small, modular pieces of code known as functions without having to maintain their own infrastructure.

FaaS is a relatively new cloud computing model that was pioneered in the early 2010s by companies such as PiCloud.

The model is based on serverless technology that allows software developers to deploy cloud applications without the hassle of server management.

To better understand how the FaaS model can benefit these individuals, we feel it is worth explaining serverless architecture and functions in more detail. 

What is serverless architecture?

Serverless architecture does not mean the application runs without a server in the literal sense. Indeed, it is well understood that some kind of hardware host is necessary for application deployment.

Fundamental to serverless architecture is that a cloud service provider allocates storage space and manages the application servers on behalf of the developer.

What is a function?

Think of a function as an operation or task that can be written as a small piece of code and executed independently within an application.

Functions are extensions of the microservice architecture, itself an evolution of monolithic architecture.

Central to microservice architecture is the idea that applications are comprised of a modular collection of microservices that are deployed individually and, as a result, are easier to test and maintain.

How does function-as-a-service work?

Under the function-as-a-service model, developers do not maintain application servers and are instead hosted by the FaaS provider who allocates resources based on user needs.

When a software developer wants to deploy a function, the FaaS provider executes the function by spinning up a server and then shutting it down.

Since the architecture is only active when the function is being used, the function is shut down and the same resources can be allocated somewhere else. 

To that end, FaaS is provided on-demand and based on the event-driven execution model. Unlike platform-as-a-service, for example, it does not require that server processes be constantly running in the background.

This makes FaaS ideal for simple, repetitive functions such as web request processing and routine task scheduling.

Benefits of function-as-a-service

Here are some of the benefits of function-as-a-service:

  • Scalability – as a cloud-based service, FaaS is eminently scalable. Specific functions can be scaled in isolation based on their usage, which is a more efficient use of computing resources when compared to scaling the entire application.
  • Lower costs – function-as-a-service is also more cost-effective since companies need to invest less in operating systems, hardware, and other infrastructure. The on-demand, event-driven nature of FaaS also means developers only pay for the resources they actually consume.
  • Streamlined logistics – development teams enjoy FaaS because it streamlines the update and code release process. With the service provider doing the heavy lifting, so to speak, developers can devote more time to ensuring updates are more rapid and responsive to customer needs.

Key takeaways:

  • Function-as-a-service (Faas) is a cloud-computing solution that allows clients to execute modular pieces of code on the edge. It is based on serverless technology that allows developers to deploy applications without having to worry about server management
  • Function-as-a-service is based on the event-driven execution model and is provided on-demand. When a function is deployed, the FaaS provider executes the function by spinning up a server and then shutting it down so that resources can be directed elsewhere.
  • Function-as-a-service has several benefits. These include streamlined logistics, lower costs, and scalability.

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Other Business Model Types

Asymmetric Business Models

In an asymmetric business model, 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.

Attention Merchant Business Model

In an asymmetric business model, 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.

Marketplace Business Models

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.

Wholesale Business Model

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.

Retail Business Model

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.


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.

Crowdsourcing Business Model

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.

Open-Core Business Model

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.

Open Source vs. Freemium

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.

Freemium Business 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.

Freeterprise Business Model

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.

Franchising Business Model

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.

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