What is cloud computing?

In simpler terms, the "cloud" doesn't refer to something floating in the sky. Instead, when you use cloud services, you're accessing remote servers, powerful mainframe computers housed in large data centers, through the internet. The cloud computing model gives you, the customer, greater flexibility and scalability compared to traditional on-premises infrastructure.

Cloud computing is pivotal in our everyday lives, whether that means to access a cloud application such as Google Gmail, stream a movie on Netflix or play a cloud-hosted video game. With cloud computing, you get the computing power or storage you need, without having to own or manage the physical hardware yourself.

Cloud computing has also become indispensable in business settings, from small startups to global enterprises, as it offers greater flexibility and scalability than traditional on-premises infrastructure. Its many business applications include enabling remote work by making data and applications accessible from anywhere, creating the framework for seamless omnichannel customer engagement and providing the vast computing power and other resources needed to take advantage of cutting-edge technologies such as generative AI and quantum computing.

Check out this video on transforming business with AI and hybrid cloud:

A cloud services provider (CSP) manages cloud-based technology services hosted at a remote data center and typically makes these resources available for a pay-as-you-go or monthly subscription fee.

Compared to traditional on-premises IT, where a company owns and maintains physical data centers and servers to access computing power, data storage and other resources, cloud computing offers many benefits, including:

• Cost-effectiveness

• Increased speed and agility

• Unlimited scalability

• Enhanced strategic value

The origins of cloud computing technology go back to the early 1960s when Dr. Joseph Carl Robnett Licklider, an American computer scientist and psychologist known as the “father of cloud computing,” introduced the earliest ideas of global networking in a series of memos discussing an Intergalactic Computer Network.

However, it wasn’t until the early 2000s that modern cloud infrastructure for business emerged. In 2002, Amazon Web Services started cloud-based storage and computing services. In 2006, it introduced Elastic Compute Cloud (EC2), an offering that allowed users to rent virtual computers to run their applications. That same year, Google introduced the Google Apps suite (now called Google Workspace), a collection of SaaS productivity applications.

In 2009, Microsoft started its first SaaS application, Microsoft Office 2011.

By 2028, Gartner predicts cloud shifts from being an industry disruptor to becoming a business necessity and an integral part of business operations.¹

The following are a few of the most integral components of today’s modern cloud architecture:

• Data centers

• Networking capabilities

• Virtualization

Infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), software-as-a-service (SaaS) and serverless computing are the most common “as-as-service” cloud platform models. Most developers at large-scale organizations use some combination of all four.

IaaS offers full control over IT infrastructure, allowing organizations to build and manage systems. PaaS builds on IaaS by providing a platform that simplifies the development and deployment of applications, handling the underlying infrastructure for you. SaaS, the most widely used cloud service, delivers ready-to-use software, removing the need for management. And serverless computing, built on IaaS and PaaS, lets you focus solely on writing code.

Infrastructure as a service (IaaS) provides on-demand access to fundamental computing resources—physical and virtual servers, networking and storage—over the internet on a pay-as-you-go basis.

IaaS enables users to scale and shrink resources on an as-needed basis, reducing the need for high up-front capital expenditures or unnecessary on-premises or “owned” infrastructure and for overbuying resources to accommodate periodic spikes in usage.

According to a report from the Business Research Company, the IaaS market is predicted to grow rapidly in the next few years, growing to USD 212.34 billion in 2028 at a compound annual growth rate (CAGR) of 14.2%.²

Platform as a service (PaaS) provides software developers with an on-demand platform—hardware, complete software stack, infrastructure and development tools—for running, developing and managing applications without the cost, complexity and inflexibility of maintaining that platform on-premises.

With PaaS, the cloud provider hosts everything at their data center. These include servers, networks, storage, operating system software, middleware and databases. Developers simply pick from a menu to spin up servers and environments they need to run, build, test, deploy, maintain, update and scale applications.

Today, PaaS is typically built around containers, a virtualized compute model one step removed from virtual servers. Containers virtualize the operating system, enabling developers to package the application with only the operating system services it needs to run on any platform without modification and the need for middleware.

Red Hat® OpenShift® is a popular PaaS built around Docker containers and Kubernetes, an open source container orchestration solution that automates cloud deployment, scaling, load balancing and more for container-based applications.

Software as a service (SaaS), also known as cloud-based software or cloud applications, is interactive application software hosted in the cloud. Users access SaaS through a web browser, a dedicated desktop client or an application programming interface (API) that integrates with a desktop or mobile operating system. Cloud service providers offer SaaS based on a monthly or annual subscription fee. They can also provide these services through pay-per-usage pricing.

In addition to the cost savings, time-to-value and scalability benefits of the cloud, SaaS offers the following:

• Automatic upgrades: With SaaS, users have access to new features when the cloud service provider adds them without having to orchestrate an on-premises upgrade.
• Protection from data loss: Because SaaS stores application data in the cloud with the application, users don’t lose data if their device crashes or breaks.

SaaS is the primary delivery model for most commercial software today. Hundreds of SaaS solutions exist, from focused industry and broad administrative (for example, Salesforce) to robust enterprise database and artificial intelligence (AI)-driven software tools.

According to a study from Fortune Business Insights, the global software as a service (SaaS) market size was valued at USD 273.55 billion in 2023 and is projected to grow from USD 317.55 billion in 2024 to USD 1,228.87 billion by 2032.³

Serverless computing, or simply serverless, is a cloud computing model that offloads all the back-end infrastructure management tasks, including provisioning, scaling, scheduling and patching, to the cloud provider. This capability frees developers to focus all their time and effort on the code and business logic specific to their applications.

Moreover, serverless runs application code on a per-request basis only and automatically scales the supporting infrastructure up and down in response to the number of requests. With serverless, customers pay only for the resources used when the application runs; they never pay for idle capacity.

Function as a service (FaaS) is often confused with serverless computing when, in fact, it’s a subset of serverless. FaaS allows developers to run portions of application code (called functions) in response to specific events. Everything besides the code—physical hardware, virtual machine (VM), operating system and web server software management—is provisioned automatically by the cloud service provider in real-time as the code runs and is spun back down once the execution is complete. Billing starts when execution starts and stops when execution stops.

A public cloud is a type of cloud computing in which a cloud service provider makes computing resources available to users over the public internet. These include SaaS applications, individual virtual machines (VMs), bare metal computing hardware, complete enterprise-grade infrastructures, and development platforms. These resources might be accessible for free or according to subscription-based or pay-per-usage pricing models.

The public cloud provider owns, manages and assumes all responsibility for the data centers, hardware and infrastructure on which its customers’ workloads run. It typically provides high-bandwidth network connectivity to help ensure high performance and rapid access to applications and data.

Public cloud is a multi-tenant environment where all customers pool and share the cloud provider’s data center infrastructure and other resources. In the world of the leading public cloud vendors, such as Amazon Web Services (AWS), Google Cloud, IBM Cloud®, Microsoft Azure and Oracle Cloud, these customers can number in the millions.

Most enterprises have moved portions of their computing infrastructure to the public cloud since public cloud services are elastic and readily scalable, flexibly adjusting to meet changing workload demands. The promise of greater efficiency and cost savings through paying only for what they use attracts customers to the public cloud. Others seek to reduce spending on hardware and on-premises infrastructure. 

A private cloud is a cloud environment where all cloud infrastructure and computing resources are dedicated to one customer only. Private cloud combines many benefits of cloud computing—including elasticity, scalability and ease of service delivery—with the access control, security and resource customization of on-premises infrastructure.

A private cloud is typically hosted on-premises in the customer’s data center. However, it can also be hosted on an independent cloud provider’s infrastructure or built on rented infrastructure housed in an offsite data center.

Many companies choose a private cloud over a public cloud environment to meet regulatory compliance requirements. Large-scale entities such as government agencies, healthcare organizations and financial institutions often opt for private cloud settings for workloads that deal with confidential documents, personally identifiable information (PII), intellectual property, medical records, financial data or other sensitive data.

By building private cloud architecture according to cloud-native principles, organizations can quickly move workloads to a public cloud or run them within a hybrid cloud (see below) environment whenever ready.

A hybrid cloud is just what it sounds like: a combination of public cloud, private cloud and on-premises environments. Specifically (and ideally), a hybrid cloud connects a combination of these three environments into a single, flexible infrastructure for running the organization’s applications and workloads.

At first, organizations turned to hybrid cloud computing models primarily to migrate portions of their on-premises data into private cloud infrastructure and then connect that infrastructure to public cloud infrastructure hosted off-premises by cloud vendors. This process was done through a packaged hybrid cloud solution such as Red Hat OpenShift or middleware and IT management tools to create a “single pane of glass.” Teams and administrators rely on this unified dashboard to view their applications, networks and systems.

Today, hybrid cloud architecture has expanded beyond physical connectivity and cloud migration to offer a flexible, secure and cost-effective environment that supports the portability and automated deployment of workloads across multiple environments. This feature enables an organization to meet its technical and business objectives more effectively and cost-efficiently than with a public or private cloud alone. For instance, a hybrid cloud environment is ideal for DevOps and other teams to develop and test web applications. This frees organizations from purchasing and expanding the on-premises physical hardware needed to run application testing, offering faster time to market. Once a team has developed an application in the public cloud, they can move it to a private cloud environment based on business needs or security factors.

A public cloud also allows companies to quickly scale resources in response to unplanned spikes in traffic without impacting private cloud workloads, a feature known as cloud bursting. Streaming channels such as Amazon use cloud bursting to support the increased viewership traffic when they start new shows.

Most enterprise organizations today rely on a hybrid cloud model because it offers greater flexibility, scalability and cost optimization than traditional on-premises infrastructure setups. According to the IBM Transformation Index: State of Cloud, more than 77% of businesses and IT professionals have adopted a hybrid cloud approach.

To learn more about the differences between public, private and hybrid cloud, check out "Public cloud vs. private cloud vs. hybrid cloud: What’s the difference?"

Multicloud uses two or more clouds from two or more different cloud providers. A multicloud environment can be as simple as email SaaS from one vendor and image editing SaaS from another. But when enterprises talk about multicloud, they typically use multiple cloud services—including SaaS, PaaS and IaaS—from two or more leading public cloud providers.

Organizations choose multicloud to avoid vendor lock-in, have more services to select from and access more innovation. With multicloud, organizations can choose and customize a unique set of cloud features and services to meet their business needs. This freedom of choice includes selecting “best-of-breed” technologies from any CSP (as needed or as they emerge), rather than being locked into offering from a single vendor. For example, an organization can choose AWS for its global reach with web hosting, IBM Cloud for data analytics and machine learning (ML) platforms and Microsoft Azure for its security features.

A multicloud environment also reduces exposure to licensing, security and compatibility issues resulting from "shadow IT"— any software, hardware or IT resource used on an enterprise network without the IT department’s approval and often without IT’s knowledge or oversight.

Today, most enterprise organizations use a hybrid multicloud model. Besides the flexibility to choose the most cost-effective cloud service, hybrid multicloud offers the most control over workload deployment, enabling organizations to operate more efficiently, improve performance and optimize costs.

According to an IBM Institute for Business Value study, the value derived from a full hybrid multicloud platform technology and operating model at scale is two-and-a-half times the value derived from a single-platform, single-cloud vendor approach.

Yet the modern hybrid multicloud model comes with more complexity. The more clouds that you use—each with its own management tools, data transmission rates and security protocols—the more difficult it can be to manage your environment. With over 97% of enterprises operating on more than one cloud and most organizations running 10 or more clouds, a hybrid cloud management approach has become crucial.

Hybrid multicloud management platforms provide visibility across multiple provider clouds through a central dashboard where development teams can see their projects and deployments, operations teams can monitor clusters and nodes, and the cybersecurity staff can monitor for threats.

Traditionally, security concerns have been the primary obstacle for organizations considering cloud services, mainly public cloud services. Maintaining cloud security demands different procedures and employee skill sets than legacy IT environments. Some cloud security best practices include the following:

• Shared responsibility for security: Generally, the cloud service provider is responsible for securing cloud infrastructure, and the customer is responsible for protecting its data within the cloud. However, it’s also essential to clearly define data ownership between private and public third parties.

• Data encryption: Data should be encrypted while at rest, in transit and in use. Customers need to maintain complete control over security keys and hardware security modules.

• Collaborative management: Proper communication and clear, understandable processes between IT, operations and security teams help ensure seamless cloud integrations that are secure and sustainable.

• Security and compliance monitoring: IT, operations and security teams must understand all regulatory compliance standards applicable to their industry and establish active monitoring of all connected systems and cloud-based services to maintain visibility of all data exchanges across all environments—on-premises, private cloud, hybrid cloud and at the edge.

Cloud security is constantly changing to keep pace with new threats. Today’s CSPs offer a wide array of cloud security management tools, including:

• Identity and access management (IAM): IAM tools and services automate policy-driven enforcement protocols for all users attempting to access both on-premises and cloud-based services. 

• Data loss and prevention (DLP): DLP services combine remediation alerts, data encryption and other preventive measures to protect all stored data, whether at rest or in motion.

• Security information and event management (SIEM): SIEM is a comprehensive security orchestration solution that automates threat monitoring, detection and response in cloud-based environments. SIEM technology uses artificial intelligence (AI)-driven technologies to correlate log data from various sources (for example, network devices, firewalls) across multiple platforms and digital assets. This allows IT teams to successfully apply their network security protocols, enabling them to react to potential threats quickly.

• Automated data and compliance platforms: Automated software solutions provide compliance controls and centralized data collection to help organizations adhere to regulations specific to their industry. Regular compliance updates can be baked into these platforms so organizations can adapt to ever-changing regulatory compliance standards.

Sustainability in business refers to a company’s strategy to reduce negative environmental impact from their operations in a particular market, and it has become an essential corporate governance mandate. Gartner predicts that 50% of organizations will adopt sustainability-enabled monitoring by 2026 to manage energy consumption and carbon footprint metrics for their hybrid cloud environments.⁴

As companies strive to advance their business sustainability objectives, cloud computing has evolved to play a significant role in helping them reduce their carbon emissions and manage climate-related risks. For instance, traditional data centers require power supplies and cooling systems, which depend on large amounts of electrical power. By migrating IT resources and applications to the cloud, organizations only enhance operational and cost efficiencies and boost overall energy efficiency through pooled CSP resources.

All major cloud players have made net-zero commitments to reduce their carbon footprints and help clients reduce the energy they typically consume using an on-premises setup. For instance, IBM is driven by sustainable procurement initiatives to reach NetZero by 2030.  

According to an International Data Corporation (IDC) forecast, worldwide spending on public cloud services is expected to double by 2028.⁵

 Here are some of the main ways businesses can benefit from cloud computing: 

• Migrate existing applications to the cloud

• Scale infrastructure

• Enable business continuity and disaster recovery

• Build and test cloud-native applications

• Support edge and IoT environments

• Use cutting-edge technologies

Organizations can allocate resources up or down quickly and easily in response to changes in business demands.

Cloud computing provides cost-effective redundancy to protect data against system failures and provide the physical distance required to apply disaster recovery strategies and recover cloud data and applications during a local outage or disaster. All of the major public cloud providers offer disaster recovery as a service (DRaaS).

For development teams adopting agile, DevOps or DevSecOps, the cloud offers on-demand, scalable resources that streamline the provisioning of development and testing environments, eliminating bottlenecks such as manually setting up servers and enabling teams to focus on building and testing cloud-native applications and their dependencies more efficiently.

The cloud can address latency challenges and reduce downtime by bringing data sources closer to the edge. It supports Internet of Things (IoT) devices (for example, patient monitoring devices, sensors on a production line) to gather real-time data.

Cloud computing supports storing and processing huge volumes of data at high speeds—more storage and computing capacity than most organizations can or want to purchase and deploy on-premises. These high-performance resources support technologies such as blockchain, quantum computing and large language models (LLMs) that power generative AI platforms such as customer service automation.