A Beginner’s Guide to Cloud Computing

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

In today’s world, most of us use some form of cloud computing. For example, your Gmail, Hotmail, or Outlook accounts 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:

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.

Key takeaways concerning how cloud computing works

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 the documents or files available anywhere the data lives on the network, through the hosted servers over the Internet.

Suppose you think of the Internet as 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, like 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 their subscribers in a safe, easy manner on a global scale.

graphic illustrating cloud infrastructure

Graphic courtesy of conceptdraw.com

To help 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, laptop, or tablet.

These virtual servers connect to huge data centers with the infrastructure available 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, the productivity app, Trello, offered by Atlassian, hosts the app on their cloud, which they outsource to Amazon’s AWS.

The Big Three cloud hosting companies are:

  • 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.

But 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 break it down into two parts, front-end, and back-end.

The two parts connect through the network, usually through 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. Others might have unique applications they use to access the cloud.

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

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

Graphic illustrating the cloud ecosystem

Graphic courtesy of fastmetrics.com

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 different companies use Gmail.

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

Bar chart showing the growth in public cloud services in the future

Private Cloud

Private clouds remain exclusive to a specific company. The private cloud 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.

graph illustrating the 3 different types of cloud, IaaS, PaaS, and SaaS

Cloud computing contains three basic models, and people refer to them 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.

Bar chart illustrating the company sahre of the public cloud

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

Platform as a Service (PaaS)

Platform as a service or PaaS offers a cloud computing platform where third parties offer the necessary software and hardware to operate their business.

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

Graph showing how PaaS works

Graphic courtesy of spiceworks.com

A good analogy for PaaS is an unfurnished apartment, with work needed to make it livable, but 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 services 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 (bold emphasis is my input):

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 simply access it via the Internet, freeing yourself from complex software and hardware management.

SaaS applications are sometimes called web-based software, on-demand software, 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.”

picture of the differences between infrastructure, middleware, and applications

Graphic courtesy of techcrunch.com

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

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 expects to top out at $115 billion in 2026. 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, 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 mind for most concerning cloud computing.

Security

Cloud computing offers some of the most secure data security, with protected, hardened data centers. These data servers help protect from hackers, accidents, and natural disasters.

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

Scalability

IT infrastructure can seriously impact a company’s budget; the services don’t come cheap. With companies enabling the cloud, they have less need for IT-related space, allowing for remote data storage, and enabling 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 internet connections. It allows users to stay ahead of work and be creative whenever it strikes them.

Continuity

Cloud-based infrastructure ensures the company’s data remains protected in a natural disaster or emergency, allowing business continuity at times of stress. If the same data remains stored on site, you risk losing the data 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 2500 minutes of work time a week by increasing the speed of utilizing the cloud.

Disadvantages of Cloud Computing

No platform or service remains fool-proof, and 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 problem
  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 remain a real threat.

For example, analysts estimate more than 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 a ton of 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 in the space not as well known.

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

Amazon Web Services

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

AWS offers various services, including high-performance computing, IoT, edge computing, e-commerce, machine learning, virtual reality, and serverless computing. AWS also offers services in 240+ countries, along with 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 similar to Amazon, including virtual work areas, public cloud, IoT, Hybrid, and multi-cloud spaces.

Google Cloud

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

One of the OG (original gangsters) of cloud computing, IBM 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 on many edge computing such as AI/ML and Kubernetes, plus they operate 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 Networks
  • 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 of the 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.

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

We all use the cloud daily, from 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 the best of 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 a bunch of jargon. But there remains a wide world of cloud computing to offer you many potential investments.

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

Thank you for reading today’s post, and I hope you find some value. If I can be of any further assistance, please don’t hesitate to reach out.

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

Dave

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