A Small Business’s Guide to the Different Types of Cloud Services

What are cloud services?

With traditional IT infrastructure, an organization’s data and processes reside in an internal network. Data is stored in one of two ways: 

• In-house server. Data may be stored in an onsite server the business owns.
• Offsite server. Data may be stored in a server at an offsite data center managed by a third party. The data is still local and dedicated only to that organization. 

Applications, such as top CRM solutions, word processing or highly rated accounting software, are stored in these local servers. The business’s processes all run on this network. It’s a closed, private and proprietary loop.

Cloud computing uses the internet to open that loop so users can house data, provide processing power, and run applications on a server where they essentially rent rather than own space. 

Programs live in the cloud – which is really just another giant server farm somewhere, connected to local users via services like AWS or Microsoft Azure. Organizations that use the cloud don’t have to manage their own storage and power; they can access applications from anywhere at any time and only pay for what they use.

How cloud service usage is accelerating

The implications of cloud capabilities on business are significant. Gartner predicts that 85% of global enterprises using the cloud now will become cloud-only operations by 2025 because of operational advantages. Gartner also forecasted that worldwide public cloud end-user spending would reach nearly $6.8 billion by the end of 2022, up from 2021’s spend of $4.8 billion. 

And according to Flexera’s State of the Cloud report, 53% of SMBs spent more than $1.2 million on public cloud services, with 22% spending up to $600,000.

Organizations with deep pockets have enjoyed cloud computing’s advantages for years, and they’re now becoming accessible to SMBs.

Cloud service example 

Some of the best POS systems are cloud-based and demonstrate how cloud services can be a convenience game-changer for SMBs. Cloud-based POS systems let you access back-office features from any browser, so you can view your store’s sales performance and run POS reports wherever you are. 

Business owners can immediately get up to speed on sales, inventory and other data without interrupting workflows or even stepping inside the store.

What are the types of cloud services?

Generally speaking, there are three layers of cloud applications: infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS). Some consider business process outsourcing (BPO) to be a fourth layer. When people talk about moving up the stack, they’re referring to these elements.

Here’s a brief overview of cloud service types. 

Business process outsourcing (BPO)

When BPO is considered a layer of cloud application, it is said to be at the top of the stack. It’s crucial to understand that BPO is not technology; it’s a business model. In this layer, processes are outsourced to vendors. This layer is often used for procurement and accounting tasks. 

BPOs come in either a horizontal offering that leverages data across specific industries, or a vertical-specific offering that requires unique industry knowledge. Paychex and QuickBooks are well-known BPO applications. To learn more, read our review of Paychex cloud-based payroll software and our QuickBooks Online review. 

Software as a service (SaaS)

The next layer of the stack is SaaS. Similar to traditional, on-premise software, cloud-based applications run on servers. However, these servers are in the cloud and accessible via the public network by anyone with a subscription. 

SaaS applications are set-and-forget applications that companies don’t have to worry about managing. Businesses can typically use them in a pay-as-you-go model instead of paying an upfront cost. Salesforce, Office 365 and Dropbox are all examples of commonly used SaaS applications. Read our Salesforce CRM review to learn more about this cloud-based SaaS solution. 

Platform as a service (PaaS)

Moving down the stack, we come to PaaS. Broadly, this is where software applications are built and deployed. If you’re buying a PaaS offering, you’re paying a provider to deal with most of the servers, operating systems and network infrastructure so you can focus on developing the actual business application. Heroku and Google Apps are examples of PaaS providers.

Infrastructure as a service (IaaS)

IaaS is the bottom and most foundational layer of the stack. This is where the most fundamental computing elements reside, such as servers, storage, hardware and networking. Organizations that want to develop an entire application themselves look to IaaS providers for these elements, along with the security and ongoing maintenance they require. 

There is an IaaS provider for just about every use case out there. Navisite, SoftLayer and Vyper VPN are some of the more popular offerings.

What are some pros and cons of cloud services?

Cloud computing’s pay-as-you-go nature is transformative, and the cloud can help businesses increase productivity and profits. But while the cloud is a game-changer, cloud migration has its challenges. Moving operations to the cloud requires research, planning and a comprehensive change in management strategy. 

The benefits can be significant and immediate, but if you execute cloud migration poorly, the disadvantages can cause damage. Here’s an overview of the cloud’s pros and cons.

Short- vs. long-term affordability

A cloud migration might save your company money, but it isn’t always the least expensive option.

Here’s the upside of migrating to the cloud: 

• The cloud offers upfront savings. Since organizations don’t have to build and support their own IT infrastructure, they save a great deal of money on the front end. 

Read on for the downsides:

• Cloud computing applications can be costly. Remember that cloud spend is essentially renting storage and computing space on a third party’s server. The more you access it, the more that access will cost you. It may very well be cheaper to build and maintain frequently accessed applications in-house.
• Cloud migration costs can be significant. Consider the costs of migrating applications from an on-premise server to the cloud. Newer, “born in the cloud” applications are purpose-built to operate and scale horizontally in a public cloud model. But many legacy applications weren’t built for a cloud world. These apps require a custom, resource-intensive effort to get the legacy app and the cloud architecture to play well together. If you don’t adequately plan for such an undertaking, the unexpected costs that come with migrating to the cloud can be a major budgetary concern.

The key is to research your options and weigh them against your budget. After all, what’s right for one SMB may be a poor fit for your business and vice versa.

Agility vs. security

The cloud affords SMBs unparalleled agility, but SMBs must understand that this agility may come with security concerns. 

Here are the advantages:

• SMBs have enhanced freedom with applications. Because organizations that use cloud computing don’t have to invest heavily in the underlying infrastructure required to build out projects or proofs of concept, they can spin up new capabilities much faster and for a lower cost. If the application is a dud, not much is lost in terms of IT spend. And if it’s a hit, a company can easily scale to accommodate demand since the cloud provider handles all of the resource-intensive parts of the operation.

Here are the downsides:

• You’re entrusting the cloud provider with proprietary data. This cloud’s agility is only possible because the underlying infrastructure is shared among the cloud provider’s customers. That means you share storage space, operating systems and security protocols with potential competitors. If you aren’t comfortable with that idea or have concerns about trusting a cloud provider with your proprietary data, a public cloud solution might not be for you.
• Unsafe applications may introduce vulnerabilities. From a security perspective, the cloud can make spinning up and accessing applications almost too easy. With traditional, on-premise infrastructure, most IT spend goes through the IT department. In the age of “there’s an app for that,” employees and managers can often procure and implement third-party applications without going through IT. These shadow apps aren’t subject to the same security measures as the rest of an organization’s processes.

How can you start using the cloud?

If you decide your SMB will benefit from cloud services, it’s time to create an implementation plan with distinct steps. If you start down the cloud road without clearly understanding your existing infrastructure costs and anticipated future needs, you may wind up costing yourself more than the cloud can save you.

Follow this five-step process in your cloud migration: 

1. Evaluate your current position. There’s more to IT spend than meets the eye. You must account for what you spend to run your server or rent space in a data center, the cost of the actual hardware, and how much you spend on mission-critical applications. Otherwise, you won’t be able to calculate whether it’s more cost-effective to buy and manage an application outright or procure it on a subscription basis in the cloud.
2. Establish priorities. Don’t get sucked into thinking you must move your entire operation to the cloud all at once. A good rule of thumb is to start with applications your operations depend on least to get a real-world feel for how processes work and how they are billed in the cloud. Cloud-based backups are a good jumping-off point, since day-to-day business operations don’t depend on backup and disaster-recovery applications.
3. Ensure your team is equipped for success. Compared to the shift people and processes must make, the technology part of cloud migration is easy. Will your employees’ job functions change? Do they need additional training? It’s crucial to invest in employee training as part of your change-management strategy.
4. Establish a migration strategy. A migration strategy is the process of moving from premises-based processes to cloud-based ones. Your migration strategy explains how you plan to adopt existing applications into the cloud. Determine what workloads are suitable for migration.
5. Choose the right cloud partner. Understand your needs and budget, and look for a partner with experience in your industry who understands your business’ nuances. This can make migration easier because the partner understands your goals and cloud capabilities. 

SMBs can tap the cloud for business benefits

The expensive hardware and software necessary to run sophisticated business applications are now within reach for SMBs. This is the true beauty of cloud computing: It helps even the playing field. With research, deliberation and a little faith, SMB owners can implement enterprise-grade solutions to better their own businesses.

Kimberlee Leonard contributed to the reporting and writing in this article