Updated 6/3/2024

What is cloud computing? How does the cloud work? We need to understand the basics of cloud computing to invest in companies such as Microsoft, Shopify, Google, or Crowdstrike.

In today’s world, most of us use some form of cloud computing. For example, your Gmail, Hotmail, or Outlook utilize the cloud. Instead of running the email program on your laptop, you log in to Gmail remotely using the cloud. All the software and storage for Gmail exist on Google’s cloud, not your computer.

Netflix offers another example of cloud computing; instead of downloading a program on your computer, we log in to our account through the Internet on our laptop or phone, and voila, Stranger Things at our command.

Today’s post will cover the basics of cloud computing to help you decipher the jargon related to these companies.

In today’s post, we will learn:

• What is Cloud Computing?
• How Does Cloud Computing Work?
• The Different Types of Cloud Computing
• Benefits of Cloud Computing
• Disadvantages of Cloud Computing
• Some of the Leading Cloud Providers
  

Okay, let’s dive in and learn how cloud computing works.

What is Cloud Computing?

Cloud computing refers to any hosted service delivered via the Internet. These services include servers, databases, software, networks, and analytics, all operated and delivered through the cloud.

The cloud stores any files or programs we need to access on our service, eliminating the “old-school” need for physical proximity to hardware.

In the old days, five years ago, we created documents or spreadsheets on our laptops, which we saved to our hard drive, USB, or disk. Without any network connection, we could not share our files without copying them to a thumb drive or disk and then sharing the physical storage.

Cloud computing now makes documents or files available anywhere data lives on the network through hosted servers over the Internet.

Suppose you consider the Internet a “virtual space” connecting users worldwide, like a cloud. The cloud shares the virtual space through data servers and networks.

How Does Cloud Computing Work?

The cloud exists as a decentralized place to share information through networks. Every cloud application, for example, Netflix, has a host and hosting company, Amazon’s AWS. The hosting company, Amazon, remains responsible for maintaining the massive data centers providing Netflix with:

• Security
• Storage capacity
• Computing power

These data centers allow Netflix to offer content to its subscribers safely and easily on a global scale.

To clarify a little more, cloud technology works through massive stacks of data servers. We use the storage space available virtually through the data servers instead of our phones, laptops, or tablets.

These virtual servers connect to huge data centers with the infrastructure to store and protect our data.

Cloud technology leads to cloud hosting, which focuses on companies specializing in cloud computing hosting their cloud service.

For example, Atlassian’s productivity app Trello hosts the app on their cloud, which they outsource to Amazon’s AWS.

The Big Three cloud hosting companies are the major players:

• Amazon with Amazon Web Services (AWS)
• Microsoft’s Azure
• Google with Google Cloud Platform (GCP)

The Big Three combine to control over 70% of the infrastructure market in the US.

However, other players in the space remain large and small, including Oracle, IBM, Digital Ocean, and Cloudways.

These hosting services sell the rights to use their clouds and store data on the network while offering the end user (us) an ecosystem we can easily navigate between our devices. Netflix remains the perfect illustration of this; they contract with Amazon’s AWS to provide hosting for Netflix’s content, which we can access through our phones.

To understand how cloud computing works, we need to divide it into two parts: the front end and the back end.

The two parts connect through the network, usually the Internet. The front end occupies the customer-facing part, while the back end uses the “cloud” section of the network.

The front end includes the customer’s phone, laptop, or tablet and the application used to access the cloud—for example, Netflix on our iPhone.

However, not all cloud systems use the same interface. For example, Web-based email programs use Web browsers like Google or Safari, while others might have unique applications they use to access the cloud.

The backend contains all the data servers, storage, and other networking to create the “cloud” computing infrastructure.

The central server remains between the front end and back end. It facilitates operations by following rules known as protocols and uses software and middleware to ensure seamless connections between them.

We can break down hosted cloud services into three categories:

• Public
• Private
• Hybrid
  

Public Cloud

Public clouds are open and accessible to all. Third-party vendors (Gmail) own and offer these publicly-owned infrastructures and share them with many businesses. In Gmail’s case, anyone can access their app, and many companies use it.

The public cloud remains a good option for new companies without strong security requirements, such as health or legal companies. These services allow young companies to benefit from the cloud without allocating many resources to keep it running.

Private Cloud

Private clouds are exclusive to a specific company. The infrastructure remains on company property or the cloud provider’s data center. Private cloud users can expect a certain level of individualized service because the cloud providers create the cloud just for their customers.

The restricted access to personal services gives the private cloud an extra layer of security for those businesses needing an added layer.

Hybrid Cloud

As you might have guessed, a hybrid cloud combines public and private clouds. The two clouds can connect over the Internet and can share needed resources. For example, if the private cloud becomes corrupted or reaches storage limits, the public cloud can offer relief.

The Different Types of Cloud Computing

The last piece of the puzzle to understanding the overview of cloud computing remains understanding the delivery and sales of cloud computing.

Cloud computing contains three basic models, which people refer to when discussing the cloud and different businesses.

• Infrastructure as a Service (IaaS)
• Platform as a Service (PaaS)
• Software as a Service (SaaS)
  

Infrastructure as a Service (IaaS)

Infrastructure as a service remains your traditional infrastructure in the virtual world. IaaS cloud computing brings the servers, storage, and networking to the cloud.

IaaS provides the structure or backbone of a cloud provider. The IaaS cloud remains the cheapest, barebones of computing elements; think of it as the empty land on which we will build our house, cheap and not open for business.

Amazon, Microsoft, and Alibaba remain the global leaders in IaaS services. In 2021, Amazon generated almost $35 billion in revenue from IaaS, giving them a 39% market share. The top five providers of IaaS services control over 80% of the global market.

Platform as a Service (PaaS)

Platform as a service, or PaaS, offers a cloud computing platform on which third parties offer the necessary software and hardware to operate their businesses.

PaaS services enable customers to develop, run, and manage their business applications without maintaining the infrastructure required to operate them.

A good analogy for PaaS is an unfurnished apartment, which needs work to make it livable, but it is better than nothing.

Many of the leading IaaS providers also offer PaaS services. For example, Amazon Elastic Beanstalk, Google Cloud, Microsoft Azure Pipelines, and Red Hat OpenShift offer PaaS and IaaS services through AWS, Azure, and Oracle Cloud.

Platform as a service providers allow developers to create using:

• Development tools
• Middleware
• Operating systems
• Databases
• Infrastructure
  

Software as a Service (SaaS)

A quote from Salesforce defining software as a service, emphasis mine:

“Software as a service (or SaaS) is a way of delivering applications over the Internet—as a service. Instead of installing and maintaining software, you access it via the Internet, freeing yourself from complex software and hardware management.

SaaS applications are sometimes called Web-based, on-demand, or hosted software. Whatever the name, SaaS applications run on a SaaS provider’s servers. The provider manages access to the application, including security, availability, and performance.”

Software as a service remains the most popular and common use of cloud computing, and it is the one most people are familiar with. For example, Twitter, Salesforce, Netflix, Adobe, Disney+, Spotify, and Trello continue to be the most familiar.

The video streaming business has exploded over the years, largely due to the explosion of SaaS services and the ease with which they allow users to connect to their content.

For example, Netflix and Prime Video saw 75 and 60 million people use their services in 2021, respectively. The global streaming market is expected to reach $115 billion in 2026, and the SaaS market generated over $152 billion in revenues in 2021.

Salesforce remains the big dog in SaaS models, providing ease of use for its customers and specific customization, making it the go-to resource for app developers.

Please think of the SaaS business as the completion of our house; we are ready to go.

Benefits of Cloud Computing

For businesses looking to grow, cloud computing offers many benefits, including:

• Security
• Scalability
• Productivity
• Continuity
• Storage
  

Let’s start with security, which is at the top of most people’s minds regarding cloud computing.

Security

With protected, hardened data centers, cloud computing offers the most secure data security. These data servers help protect from hackers, accidents, and natural disasters.

Because of the nature of the cloud computing model, important information doesn’t rely on one device, which could be infected, lost, or broken at any moment.

Scalability

IT infrastructure can seriously impact a company’s budget; services aren’t cheap. Enabling the cloud reduces the need for IT-related space, allows for remote data storage, and enables the company to grow without capex worries related to tech.

Productivity

Using the cloud means you and your employees can work from anywhere you have an internet connection. It allows users to stay ahead of work and be creative whenever they feel the urge.

Continuity

Cloud-based infrastructure ensures the company’s data remains protected in a natural disaster or emergency, allowing business continuity during times of stress. If the same data remains stored on site, you risk losing it in the same events.

Storage

Cloud storage can free up tons of space on office computers, allowing them to work much faster. For example, if a company can save one minute in lag time a day, 500 employees can free up an additional 2000+ work time by increasing the speed of utilizing the cloud.

Disadvantages of Cloud Computing

No platform or service remains fool-proof; every system will encounter risks and disadvantages. Below is a list of eight possible challenges you could face using cloud computing.

1. Risk of data confidentiality
2. Dependency on Internet connections
3. The level of security
4. Compliance
5. Vulnerable in the event of attacks
6. Data Mobility
7. Technical problems
8. Low connection
   

The recent rise in malware as a service (MaaS), yes, such a thing exists today, continues to drive fears concerning the cloud. The risk of data breaches and compromised security remains a real threat.

For example, analysts estimate over 2,200 cyberattacks daily, equaling one cyberattack every 39 seconds. As of July 2022, hackers made over $2.6 billion from cyberattacks.

Most companies’ cyberattacks remain the major threat to cloud computing and data integrity. Data has become digital gold and has much value for most companies. He who controls the data controls the world or something along those lines.

Some of the Leading Cloud Providers

The leading cloud providers include some of the world’s biggest businesses, some familiar names, and a few less well-known players in the space.

• Amazon Web Services (AWS)
• Microsoft Azure
• Google Cloud (GCP)
• IBM Cloud
• Oracle Cloud Infrastructure
  

Amazon Web Services

AWS leads with the highest cloud market share, offering around 200+ IaaS, PaaS, and SaaS cloud services, including hybrid and public offerings.

AWS offers various services, including high-performance computing, IoT, edge computing, e-commerce, machine learning, virtual reality, and serverless computing. It also offers services in 240+ countries and 80+ accessibility zones.

Amazon leads in the land rush to grab the most real estate for data servers. Their products work well, have great design, and offer flexible payments.

Microsoft Azure

A strong number two in cloud computing offerings, Azure offers 200+ services and occupies many global data centers, giving them a great breadth of offerings.

Azure offers products and services like Amazon, including virtual work areas, public cloud, IoT, Hybrid, and multi-cloud spaces.

Google Cloud

She is considered by many the third strongest cloud provider behind Azure and AWS. Google offers a global cloud, along with cloud CDN, storage, streaming analytics, AI/ML, IoT, and security.

Google’s specialty remains AI/ML and analytics as the company continues to innovate in these areas, partly for Google Search and the Waymo self-driving car experiment.

Google focuses more on the retail, medical, media, entertainment, and monetary admin than the others.

IBM Cloud

IBM is one of the OG (original gangsters) of cloud computing. It offers public, multi-cloud, and hybrid clouds focusing on storage, networking, AI/ML, security, IoT, and Quantum computing.

Oracle Cloud Infrastructure

Oracle offers a wide range of integrated public cloud and applications, including IaaS, PaaS, and SaaS. They include computing, analytics, storage, networking, and security.

Not as well known as the Big Three, Oracle competes in many edge computing fields, such as AI/ML and Kubernetes. Plus, it operates on six continents, offering a large reach.

Other players in the cloud computing space include those focusing on specific areas such as security, storage, compliance, and sales.

The security space, for example, offers:

• Crowdstrike
• Cloudflare
• Palo Alto Network
• Fortinet
  

Other big names in the space include:

• Snowflake
• Datadog
• Okta
  

Frankly, I am only scratching the surface of companies involved in the fast-growing cloud space. Some legacy techs, including Cisco and Intel, also offer cloud products, focusing on the hardware for the cloud in switches and semiconductors for data towers.

Investor Takeaway

One of the biggest leaps in technology occurred by embracing cloud computing. Cloud computing enabled many different processes and allowed for the growth of many businesses.

We can now share files back and forth, back up our work and email, and conduct our e-commerce through the cloud.

Please explain cloud computing to a five-year-old so they can understand that it offers a combination of hosted applications, data storage, and remote server access through the Internet.

We all use the cloud daily, whether for email, banking, watching Netflix, ordering items from Prime, or reading this blog post. Investing in such a vast array of services and products can confuse even the best investors.

Use this guide to give you a basic understanding of cloud computing and the different platforms offered.

We only scratched the surface of the cloud’s ability and scale, and I didn’t want to overwhelm people with jargon. However, the wide world of cloud computing still offers you many potential investments.

With that, we will wrap up our discussions regarding how cloud computing works.

Thank you for reading today’s post. I hope you find some value in it. If I can further assist, please don’t hesitate to let me know.

Until next time, take care and be safe out there,

Dave