The cloud computing marketplace has evolved into a very complex economic system made up of numerous services. It is a newly emerging paradigm where computing resources such as software, infrastructure, applications, and storage are provided as on-demand services over the Internet. Cloud computing eliminates the need for investing in hardware or software products, as it offers location-dependent and highly scalable services.

Although relatively new, cloud computing is already a significant part of the technology sector. Gartner forecasts public cloud spending to grow by 23.1% in 2021 to reach $332 billion from $270 billion in 2020.

Cloud computing service delivery models

The cloud computing model is typically divided into three service delivery models:

SaaS

SaaS, or Software as a Service, delivers specific applications for users over the Internet. Today, there is a huge variety of SaaS solutions available, including calendars, email services, music services, web scraping tools, and so much more. SaaS offerings can include APIs, which could make your data collection process a lot easier. An API is a set of protocols that explain how computers or applications communicate with each other. Commonly used examples of SaaS services include Gmail, Google Docs, and Dropbox.

PaaS

PaaS, or Platform as a Service, offers a computing platform on which users can develop, deploy, and run their applications. It is mostly used by developers who get all the necessary tools and resources to build applications on Paas platforms. Examples include Microsoft Azure, Amazon Elastic MapReduce, and Google App Engine.

IaaS

IaaS, or Infrastructure as a Service, rents out the use of servers, storage, and networks. The infrastructure is delivered to customers on-demand, but the entire platform is maintained and managed by the service provider. Examples include Google Cloud, Rackspace Cloud, and Amazon EC2. Each type of cloud service (SaaS, PaaS, and IaaS) has a different pricing and contracting structure, creating a complicated economic marketplace. Adding to the complexity of the cloud marketplace, is the fact that a particular SaaS service may be running in conjunction with a PaaS or IaaS service model. Thus, there is a multi-tier economic interaction between the different cloud service models and their users.

The economics of SaaS, PaaS, and IaaS

Cloud computing users are mostly of two types. The consumers of PaaS and IaaS are usually companies who leverage the cloud to outsource their internal IT functions, or provide client-facing applications, using SaaS services.

Alternatively, SaaS consumers are mainly individuals moving their data through email or networking. These consumers also use SaaS for simple computation needs such as using spreadsheets, or for entertainment and content consumption. For instance, using Hulu, Pandora, or World of Warcraft instead of buying software.

Sometimes, crossovers do happen when individuals use PaaS or IaaS to run their websites on virtual servers. Companies can also use SaaS models such as CRM software hosted on the cloud.

Recent financial crises and recessions have also forced numerous companies to opt for cost-efficient cloud services as a means of finding cheaper IT solutions. Cost saving in cloud computing mainly results from economies of scale through virtualization, statistical multiplexing, and clustering that allow higher utilization rates of centralized computing services.

Cloud service providers also require large physical spaces for setting up data centers and power and network bandwidth. These providers prefer to set up their computing centers in rural areas close to power grids and broadband networks, which is yet another source of cost-saving. The labor cost of maintaining the computing infrastructure is also distributed across a large number of servers in several computing centers, contributing to cost-saving and economies of scale.

The economics of migrating to the cloud

Migrating an existing application to the cloud requires the analysis and consideration of numerous economic factors and variables. In the case of a highly customized software package, or a custom-built in-house application, things can get even more complicated.

The economic implications of migrating existing applications to the cloud are not trivial. There are many factors to consider, such as:

  • The requirement for altering the code
  • Providing the services
  • Performing the migration
  • Testing
  • Deploying the applications

Workload intensity, growth rate, storage capacity, and software licensing costs can have a significant impact on overall costs.

The evolving economics of the cloud

The economics of the cloud is changing rapidly. New service providers are increasingly entering the market, intensifying the competition. There is tremendous competition between some of the largest names in the industry such as Amazon, Google, Microsoft, and IBM which is driving down prices. These service providers are developing new hardware services within their networks and repackaging their market offerings.

At the same time, there are new models for cloud productivity being developed, making cloud computing a popular sector to watch out for.

Conclusion

Cloud computing offers many benefits to your business. Numerous companies use all three service models- SaaS, PaaS, and IaaS – to meet their business needs. Migrating to the cloud gives you the benefit of setting up a virtual office and the flexibility of connecting to your business any time, anywhere.

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