IaaS Business Model

IaaS stands for infrastructure as a service. Together with other “as-a-service” models, the basic premise of this model is to offer a solution to the final customer without having to host it on-premise, with complex implementations and large overhead. The IaaS model provides virtualization, storage, network, and servers where the final user/customer will handle applications, data, operating systems, and run times.

DefinitionInfrastructure as a Service (IaaS) is a cloud computing service model that provides virtualized computing resources over the internet. IaaS delivers scalable and on-demand infrastructure components such as virtual machines, storage, networking, and servers. Users can access and manage these resources without the need for physical hardware, reducing the cost and complexity of maintaining on-premises infrastructure. It forms the foundational layer of cloud services, enabling businesses to build, deploy, and manage their applications and IT environments in a highly flexible and cost-effective manner.
Key FeaturesVirtualization: IaaS relies on virtualization technology to create and manage virtual instances of computing resources. – Scalability: Users can scale their infrastructure up or down as needed, paying only for the resources used.
Self-Service: IaaS platforms provide self-service interfaces for provisioning and managing resources, reducing reliance on IT administrators.
Resource Monitoring: Users can monitor and manage their resources, often with tools and dashboards provided by the IaaS provider.
Network Connectivity: IaaS typically includes networking services to connect and secure resources.
Use CasesWeb Hosting: IaaS is used to host websites and web applications, allowing them to scale to handle traffic fluctuations.
Development and Testing: Developers use IaaS to create development and test environments without the need for physical hardware.
Backup and Disaster Recovery: IaaS provides secure and scalable backup and disaster recovery solutions.
Big Data and Analytics: IaaS platforms support big data processing and analytics by providing the necessary compute and storage resources.
BenefitsCost Savings: IaaS eliminates the need for upfront infrastructure investments and reduces ongoing maintenance costs.
Flexibility: Users can quickly adapt their infrastructure to changing demands and business needs.
Scalability: IaaS platforms offer the ability to scale resources up or down in real-time, ensuring optimal performance and cost-efficiency.
Security: Reputable IaaS providers invest in robust security measures and compliance standards, enhancing data protection.
ChallengesSecurity Concerns: While IaaS providers implement security measures, users are responsible for securing their own applications and data within the cloud.
Data Transfer Costs: Bandwidth and data transfer costs can add up, especially for data-intensive applications.
Vendor Lock-In: Moving applications and data between IaaS providers can be complex, leading to vendor lock-in.
Popular IaaS ProvidersAmazon Web Services (AWS): Offers a wide range of IaaS services through its Amazon Elastic Compute Cloud (EC2) and Amazon Simple Storage Service (S3), among others.
Microsoft Azure: Provides IaaS capabilities through Azure Virtual Machines and Azure Blob Storage, among other services.
Google Cloud Platform (GCP): Offers Google Compute Engine for virtual machines and Google Cloud Storage for storage needs.
IBM Cloud: Provides IaaS solutions through IBM Virtual Servers and IBM Cloud Object Storage, among others.

Breaking down the IaaS business model

The “as-a-service” models are typical of the second wave of the Web 2.0, built on top of cloud computing. Indeed, these models’ basic premise is to offer a solution to the final customer without having to host it on-premise, with complex implementations and large overhead. Yet while PaaS and IaaS are skewed toward development teams. SaaS has wider applications toward end-users, also in non-technical departments.
Example of a SaaS model built on top of IaaS and PaaS (Source: C3.ai)

Where in an on-premise solution the company will have to control, manage and implement the full stack:

  • Applications.
  • Data.
  • Runtime.
  • Middleware.
  • O/S.
  • Virtualizations.
  • Servers.
  • Storage.
  • Networking.

In IaaS the company/customer will have to worry only about:

  • Applications.
  • Data.
  • Runtime.
  • Middleware.
  • O/S.

The IaaS provider will take care only of the following:

  • Virtualizations.
  • Servers.
  • Storage.
  • Networking.

What makes up an IaaS platform?

  • Physical Data Center: The underlying layer of an IaaS platform is the physical data center infrastructure. This layer comprises the actual hardware, including servers, storage devices, networking equipment, power and cooling systems, and physical security measures. Data centers may be distributed across multiple locations for redundancy and disaster recovery.
  • Virtualization Layer: Virtualization is a fundamental technology in IaaS that enables the abstraction of physical hardware into virtualized resources. The virtualization layer includes hypervisors or container orchestration platforms that create and manage virtual machines (VMs) or containers. These virtualization technologies allow multiple virtual instances to run on a single physical server.
  • Resource Pooling and Abstraction: This layer is responsible for pooling and abstracting the physical resources (CPU, memory, storage, and network) into a unified pool of virtual resources. It allows users to provision and manage these resources without needing to be aware of the underlying physical hardware.
  • Orchestration and Management: The orchestration and management layer provides the tools and interfaces for users to manage their virtualized resources. This includes user interfaces (UIs), application programming interfaces (APIs), and command-line tools for provisioning, scaling, monitoring, and managing virtual machines, storage, and networking.
  • Networking Layer: IaaS platforms provide virtualized networking capabilities to enable the configuration and management of network resources. This includes features such as virtual private clouds (VPCs), load balancers, firewalls, and software-defined networking (SDN) for network automation and control.
  • Storage Layer: The storage layer provides various storage options, including block storage, object storage, and file storage, that users can provision and manage. Users can create, attach, and manage virtual disks or storage containers to their virtual machines.
  • Security and Access Control: Security is a critical consideration in IaaS. This layer includes features like identity and access management (IAM), encryption, security groups, and role-based access control (RBAC) to secure resources and data in the cloud.
  • Monitoring and Logging: IaaS platforms typically offer monitoring and logging capabilities, allowing users to track the performance, availability, and health of their virtual resources. This layer may include dashboards, alerting systems, and integration with logging and monitoring tools.
  • Billing and Cost Management: To track resource usage and allocate costs, IaaS providers offer billing and cost management services. Users can view usage reports, set spending limits, and manage their billing preferences.
  • Compliance and Governance: This layer focuses on compliance with regulatory requirements and governance policies. IaaS platforms often provide tools for audit logging, compliance reporting, and policy enforcement.
  • Backup and Disaster Recovery: IaaS providers offer backup and disaster recovery solutions to help users protect their data and applications from loss. This can include automated backup, snapshotting, and replication services.
  • API Gateway and Marketplace: Some IaaS providers offer an API gateway and a marketplace where users can access third-party services, applications, and integrations to extend their cloud infrastructure.

Why do companies leverage IaaS?

Usually, businesses leverage IaaS for testing and faster deployment, hosting, web app development, and more.

One of the benefits of using IaaS is the need for companies to reduce the capital expenditure of setting up a complex platform on-premise before seeing its benefits.

Therefore, this might help companies to innovate faster and with lower expenses, more security, scalability, faster deployments, and expanded use cases across the organization.

Of course, IaaS also comes with less control. In a market skewed toward rapid innovation, more and more companies at the enterprise level are leveraging on that.

To recap, some of the values that IaaS brings to the market are:

  • Scalability and Flexibility: IaaS platforms often emphasize their ability to scale resources up or down based on demand. This scalability ensures that customers can efficiently manage workloads and adapt to changing business needs.
  • Cost Savings: IaaS providers typically highlight cost savings compared to traditional on-premises infrastructure. Customers can avoid upfront capital expenses, reduce maintenance costs, and pay only for the resources they use.
  • Pay-as-You-Go: The pay-as-you-go pricing model allows customers to pay for resources on an as-needed basis, which can result in cost efficiencies, especially for variable workloads.
  • Global Reach: IaaS providers often have a global network of data centers, enabling customers to deploy resources in multiple regions for improved performance and redundancy.
  • Security and Compliance: Strong security measures, compliance certifications, and data encryption features are essential components of IaaS value propositions. Customers need to trust that their data is secure in the cloud.
  • Reliability and Uptime: IaaS providers often tout their service-level agreements (SLAs) and commitment to high availability. Customers expect minimal downtime and maximum uptime for their critical applications.
  • Simplified Management: IaaS platforms simplify infrastructure management tasks such as provisioning, scaling, monitoring, and backup. Customers can focus on their applications rather than managing physical hardware.
  • Disaster Recovery and Backup: Many IaaS providers offer robust disaster recovery and backup solutions to help customers protect their data and applications from loss.
  • Developer-Friendly: IaaS platforms may provide a range of development tools, APIs, and integration options, making it easy for developers to build and deploy applications.
  • Hybrid and Multi-Cloud Support: IaaS providers that support hybrid and multi-cloud deployments offer customers the flexibility to use both on-premises and cloud resources seamlessly.
  • Networking Services: IaaS platforms typically offer a suite of networking services, including virtual private clouds (VPCs), load balancers, and content delivery networks (CDNs), to enhance application performance and security.
  • Comprehensive Ecosystem: Some IaaS providers offer a marketplace or ecosystem of third-party services, applications, and integrations that customers can easily access and deploy.
  • Compliance and Governance Tools: IaaS providers may provide tools and features to help customers meet compliance requirements and enforce governance policies.
  • Environmental Responsibility: Some IaaS providers highlight their commitment to sustainability and eco-friendly practices, which may resonate with environmentally conscious customers.
  • Support and Service Levels: Different levels of customer support, including 24/7 support and premium support tiers, are often part of the IaaS value proposition.
  • Community and User Engagement: Building a strong community of users and developers can be part of the value proposition, offering knowledge-sharing resources and opportunities for networking.

How is IaaS monetized?

  • Pay-as-You-Go (Usage-Based) Pricing: This is one of the most common revenue models for IaaS providers. Customers are billed based on their actual usage of resources, such as virtual machines, storage, and data transfer. They pay for the compute capacity and storage they consume, often on an hourly or per-minute basis. This model is flexible and cost-effective as users only pay for what they use.
  • Reserved Instances (RI): IaaS providers offer reserved instance pricing, where customers commit to using specific resources for an extended period (e.g., one year or three years). In return, they receive significant discounts compared to pay-as-you-go rates. RIs are suitable for predictable workloads.
  • Spot Instances: Some IaaS providers offer spot instances, which allow customers to bid on unused or spare computing capacity at lower prices. Spot instances are ideal for workloads that can tolerate interruptions and are cost-effective when resources are available at reduced rates.
  • Dedicated Hosts: IaaS providers may offer dedicated hosts, where customers rent an entire physical server for exclusive use. This pricing model provides greater control and isolation but is generally more expensive than virtualized instances.
  • Fixed Pricing Tiers: Some IaaS providers offer fixed pricing tiers where customers can choose predefined configurations with a set amount of resources (CPU, memory, storage). These fixed tiers may include a monthly or annual subscription fee.
  • Storage Pricing: IaaS providers charge for storage based on the amount of data stored and the storage class (e.g., standard, archival). Customers may pay for data storage, data retrieval, and data transfer costs.
  • Network Data Transfer Pricing: IaaS providers often charge for data transfer across the network, both incoming and outgoing. Costs may vary based on the amount of data transferred and the destination.
  • Service Add-Ons: IaaS providers may offer additional services and features beyond compute and storage resources. These services can include load balancers, content delivery networks (CDNs), monitoring and analytics tools, and databases, which may have their pricing models.
  • Support and SLA-Based Pricing: IaaS providers typically offer different levels of customer support with varying response times and service-level agreements (SLAs). Customers pay extra for premium support plans and guaranteed uptime.
  • Marketplace Revenue Share: Some IaaS providers maintain a marketplace where third-party vendors can offer their services and solutions. The IaaS provider may take a percentage of the revenue generated by these third-party offerings as part of their revenue model.
  • Consulting and Professional Services: IaaS providers may offer consulting, training, and professional services to help customers design, deploy, and optimize their infrastructure. These services can be an additional source of revenue.
  • Compliance and Security Services: Some IaaS providers charge extra for compliance-related services and security features, such as DDoS protection, identity and access management (IAM), and advanced encryption.
  • Custom Pricing: For large enterprises and organizations with specific requirements, IaaS providers may offer custom pricing arrangements based on negotiated contracts and tailored service levels.

What are the key use cases for IaaS?

  • Individual Developers and Small Startups:
    • Individual developers and small startups often have limited budgets and resource requirements.
    • They seek cost-effective IaaS solutions that provide scalability and flexibility for their development and testing needs.
    • Value simplicity and ease of use in provisioning and managing resources.
  • SMBs (Small and Medium-Sized Businesses):
    • SMBs require IaaS platforms that offer a balance between affordability and scalability.
    • They need cloud resources to host web applications, databases, and other critical workloads.
    • Seek simplified infrastructure management and support for growth.
  • Enterprise IT Departments:
    • Large enterprises have complex infrastructure requirements and often operate in regulated industries.
    • They look for IaaS providers that offer robust security, compliance, and support for mission-critical applications.
    • Need solutions that integrate with their existing IT ecosystem and support hybrid or multi-cloud strategies.
  • Developers and DevOps Teams:
    • Developers and DevOps teams in various industries need IaaS platforms that enable agile development and deployment.
    • They value automation, CI/CD pipelines, container orchestration, and a wide range of virtualization and container options.
  • ISVs (Independent Software Vendors):
    • ISVs build and deliver software products to other businesses or consumers.
    • They require IaaS platforms that offer scalability, white-labeling options, and multi-tenancy support.
    • Seek marketplace and partnership opportunities for distributing their software.
  • Data-Intensive Workloads:
    • Organizations with data-intensive workloads, such as big data analytics, machine learning, and scientific research, have specific IaaS requirements.
    • They need scalable compute and storage resources, as well as support for specialized data processing tools and frameworks.
  • E-commerce and Online Retail:
    • E-commerce businesses require IaaS platforms that can handle high traffic, secure transactions, and provide reliable content delivery.
    • Seek support for scaling during peak shopping seasons.
  • Gaming and Media:
    • Gaming and media companies need IaaS solutions that can handle high-performance, low-latency requirements for game servers, streaming, and content delivery.
  • Government and Public Sector:
    • Government agencies and public sector organizations often have strict security and compliance requirements.
    • They need IaaS providers that adhere to government regulations and offer secure and auditable cloud solutions.
  • Healthcare and Life Sciences:
    • Healthcare organizations and research institutions have specific compliance and data privacy needs.
    • They look for IaaS platforms with healthcare-specific solutions, data encryption, and HIPAA compliance.
  • IoT (Internet of Things):
    • IoT developers and companies require IaaS solutions that can handle massive data ingestion, real-time processing, and device management.

Key Highlights of Infrastructure as a Service (IaaS):

  • Definition and Concept:
    • IaaS stands for Infrastructure as a Service.
    • Part of the “as-a-service” model, IaaS offers solutions to customers without requiring on-premise hosting, complex implementations, and high overhead costs.
    • IaaS provides virtualization, storage, network, and servers, while customers handle applications, data, operating systems, and runtimes.
  • Comparison with On-Premise Solutions:
    • In traditional on-premise solutions, companies must manage and control the entire stack, including applications, data, runtime, middleware, OS, virtualization, servers, storage, and networking.
    • In the IaaS model, customers only need to manage applications, data, runtime, middleware, and OS, while the IaaS provider handles virtualization, servers, storage, and networking.
  • Layered “as-a-Service” Models:
    • IaaS is the foundational layer in the “as-a-service” hierarchy, below Platform as a Service (PaaS) and Software as a Service (SaaS).
  • Benefits of Leveraging IaaS:
    • Companies use IaaS for various purposes such as testing, faster deployment, web app development, and more.
    • Key benefits include reducing capital expenditure for setting up complex on-premise platforms, enabling faster innovation, scalability, enhanced security, lower expenses, and expanded use cases across the organization.
  • Trade-offs and Considerations:
    • While IaaS offers advantages, it also comes with less control compared to on-premise solutions.
    • In a rapidly evolving market, companies are increasingly adopting IaaS to maintain a competitive edge and drive innovation.
  • Example Use Case:
    • IaaS is suitable for scenarios where companies want to focus on their core applications and services while outsourcing the underlying infrastructure management to a provider.

Case Studies

IaaS ProviderDescriptionIaaS ExampleKey Features and Use Cases
Amazon Web Services (AWS)AWS offers a wide range of IaaS services, including Amazon EC2 (Elastic Compute Cloud) for virtual servers and Amazon S3 (Simple Storage Service) for scalable storage.AWS EC2 provides resizable compute capacity, while Amazon S3 offers scalable and secure object storage. AWS also provides networking services and more.AWS IaaS services are suitable for a wide range of applications, from hosting websites to running large-scale data analytics workloads.
Microsoft AzureAzure provides virtual machines (VMs), Azure Storage for scalable storage, and Azure Virtual Network for networking in its IaaS offerings.Azure VMs support Windows and Linux instances, and Azure Storage offers scalable file, blob, and queue storage. Azure Virtual Network provides secure, isolated networking.Azure IaaS is ideal for organizations that require hybrid cloud solutions, Windows-based workloads, or integration with Microsoft services.
Google Cloud Platform (GCP)GCP’s IaaS offerings include Google Compute Engine for VMs, Google Cloud Storage for scalable storage, and Google VPC for networking.Google Compute Engine provides customizable VMs, while Google Cloud Storage offers object storage and big data solutions. Google VPC provides network isolation.GCP IaaS services leverage Google’s global network infrastructure and data analytics capabilities for modern cloud applications and data processing.
IBM CloudIBM Cloud offers virtual servers, cloud storage, and networking services in its IaaS portfolio.IBM virtual servers support various operating systems, and IBM Cloud Storage provides scalable block and object storage. IBM Cloud also offers network and security solutions.IBM Cloud IaaS is suitable for enterprises looking for hybrid cloud solutions and leveraging IBM’s expertise in enterprise technologies.
Oracle CloudOracle Cloud Infrastructure (OCI) offers compute instances, block and object storage, and networking services.OCI provides customizable compute instances, high-performance block storage, and scalable object storage. Networking services include Virtual Cloud Network (VCN).OCI is well-suited for organizations using Oracle technologies and databases, as well as those seeking high-performance cloud infrastructure.
Alibaba CloudAlibaba Cloud offers Elastic Compute Service (ECS) for VMs, Object Storage Service (OSS) for scalable storage, and Virtual Private Cloud (VPC) for networking.ECS provides flexible VMs, OSS offers scalable storage, and VPC allows network customization and isolation. Alibaba Cloud also offers global CDN and AI services.Alibaba Cloud IaaS is a strong option for organizations with a presence in Asia and those looking to tap into the Chinese market.
DigitalOceanDigitalOcean provides cloud VMs called Droplets, scalable block storage, and managed Kubernetes clusters.Droplets are easy-to-deploy VMs, and block storage can be attached to VMs. Managed Kubernetes simplifies container orchestration.DigitalOcean is known for its simplicity and developer-friendly approach, making it popular among startups and developers for web hosting and app deployment.
RackspaceRackspace offers managed cloud services, including managed VMs, storage, and networking.Rackspace provides managed services on various cloud platforms, including AWS, Azure, and GCP, as well as its OpenStack-based infrastructure.Rackspace is suitable for organizations seeking a managed IaaS solution, allowing them to focus on their applications while outsourcing infrastructure management.
VultrVultr offers cloud VMs with high-performance SSD storage, block storage, and networking services.Vultr provides fast, affordable VMs with various global data center locations. Block storage can be added to VMs for scalable storage needs.Vultr targets developers and small to medium-sized businesses seeking cost-effective cloud infrastructure for web hosting and applications.
LinodeLinode offers cloud VMs, block storage, and networking solutions for developers and small businesses.Linode provides VMs with competitive pricing, block storage for data storage needs, and network options for customization.Linode caters to developers and small businesses looking for straightforward cloud infrastructure for web hosting and application deployment.

Connected Business Frameworks

Customer Lifetime Value

One of the first mentions of customer lifetime value was in the 1988 book Database Marketing: Strategy and Implementation written by Robert Shaw and Merlin Stone. Customer lifetime value (CLV) represents the value of a customer to a company over a period of time. It represents a critical business metric, especially for SaaS or recurring revenue-based businesses.


AIOps is the application of artificial intelligence to IT operations. It has become particularly useful for modern IT management in hybridized, distributed, and dynamic environments. AIOps has become a key operational component of modern digital-based organizations, built around software and algorithms.

Machine Learning

Machine Learning Ops (MLOps) describes a suite of best practices that successfully help a business run artificial intelligence. It consists of the skills, workflows, and processes to create, run, and maintain machine learning models to help various operational processes within organizations.

Continuous Intelligence

The business intelligence models have transitioned to continuous intelligence, where dynamic technology infrastructure is coupled with continuous deployment and delivery to provide continuous intelligence. In short, the software offered in the cloud will integrate with the company’s data, leveraging on AI/ML to provide answers in real-time to current issues the organization might be experiencing.

Continuous Innovation

That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problems and not the technical solution of its founders.

Technological Modeling

Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Business Engineering


Tech Business Model Template

A tech business model is made of four main components: value model (value propositions, missionvision), 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.

Read More:

About The Author

Scroll to Top