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

What are cloud services?

In a traditional IT infrastructure, an organization’s data and processes reside in an internal network. Data is stored in-house or offsite: 

• In-house server: Data is stored on servers owned and managed onsite.
• Offsite server: Data is stored in an offsite, third-party data center, but its servers are dedicated exclusively to that organization. 

Applications, such as the best customer relationship management (CRM) software, word processing solutions and accounting software, are stored on these local servers and the business’s processes all run on this network. It’s a closed, private and proprietary loop.

In contrast, 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. The cloud is another giant server farm somewhere that’s connected to local users via services like Amazon Web Services 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.

Cloud service example 

Many retailers use point-of-sale (POS) systems to accept customer payments. Today, many of the best POS systems are cloud-based and are a great example of how cloud services can be a convenience game-changer for SMBs. Cloud-based POS software allows you to access back-office features from any browser, so you can view your store’s sales performance and run POS reports wherever you are. 

With cloud POS systems, 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?

The three primary cloud service layers include 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. The term “moving up the stack” refers to progressing through these layers.

Here’s a brief overview of cloud service types. 

BPO

When BPO is considered part of cloud services, it is sometimes said to be at the top of the stack. However, it’s crucial to understand that BPO is not a technology layer. It’s a business model. In this model, entire processes, such as procurement and accounting, are outsourced to vendors.  

BPOs can be:

• Horizontal offerings: Horizontal offerings are services that apply across multiple industries, such as outsourced payroll or human resources (HR) outsourcing. (Read our overviews of the best HR outsourcing services to learn about specific BPO examples.)
• Vertical offerings: Vertical-specific offerings are tailored to particular industries and require unique industry knowledge. 

SaaS

SaaS is the next layer of the stack. While they’re similar to traditional, on-premise software, SaaS applications are cloud-based and run on remote servers. These servers are accessible via the internet to anyone with a subscription. 

SaaS applications are set-and-forget software solutions that companies don’t have to worry about managing. Businesses typically can 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. 

PaaS

Moving down the stack, we come to PaaS. This layer provides a platform for building, testing and deploying software applications. If you buy a PaaS offering, you’ll pay 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.

IaaS

IaaS is the bottom and most foundational layer of the stack. It provides essential computing resources, such as servers, storage, hardware and networking. Organizations that want to develop and manage their own applications rely on IaaS providers for these elements as well as security and ongoing maintenance. 

There is an IaaS provider for about every use case out there. Navisite, SoftLayer and VyprVPN 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. However, cloud migration comes with challenges and requires research, careful planning and changes in management strategy. The benefits can be significant, but poor execution can be costly. Here’s an overview of the cloud’s pros and cons.

Cloud service pros

• Upfront savings: Since organizations don’t have to build and support their own information technology (IT) infrastructure, they save a great deal of money on the front end. 
• Application freedom and agility: With no significant investment in infrastructure, SMBs can quickly develop, test and scale new applications. If an application is a dud, not much is lost in terms of IT spend. However, if it’s a hit, the company can scale easily to accommodate demand because the cloud provider handles all the resource-intensive operations.
• Scalability and flexibility: Cloud services help businesses scale their operations up or down quickly. They can match demand without costly hardware purchases or delays.

Cloud service cons

• Long-term costs: While upfront savings can be significant, renting cloud resources can be costly over time, particularly if you must access cloud applications and resources frequently. 
• Migration costs: Moving your legacy applications to the cloud can be complex and expensive, especially if they weren’t built for the cloud environment.
• Security concerns: The cloud’s shared infrastructure model means sharing 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.

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:

1. Evaluate your current IT spend: Consider how much you spend to run your server or rent space in a data center, hardware costs and how much you spend on mission-critical applications. You must be able to calculate accurately whether it’s more cost-effective to buy and manage an application or procure it on a subscription basis in the cloud.
2. Test the cloud with a noncritical application: You don’t have to move your entire operation to the cloud all at once. Start with less critical applications to get a feel for how cloud processes and billing work. For example, consider starting with cloud-based backups — your daily business operations don’t depend on backup and disaster-recovery applications.
3. Set up your employees for success: Your employees must understand what’s happening and be alerted to any job function changes caused by cloud migration. 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 vendor with experience in your industry that understands your business’ nuances. This can make migration easier because the partner will understand your goals and cloud capabilities. 

Best cloud service providers

Numerous vendors provide cloud computing services and selecting the right one for your business can be confusing. Here are a few top contenders in various cloud service categories to consider as you conduct your research. 

Google Drive

Google Drive is a widely used cloud service that integrates seamlessly with Google’s suite of business tools, including Google Docs (word processing), Sheets (spreadsheet), Gmail (email), Slides (presentation software), Drive (storage and collaboration), Calendar and Meet (video conferencing) — all available for free with a Google account. Users can share any type of document in the Google Cloud easily for collaboration or send large files that can’t be emailed.

Users must pay for premium features, such as a custom email domain through Gmail and additional storage beyond the 15 GB free allotment. Google charges for storage plans starting at  100 GB. 

Microsoft Azure

Microsoft Azure is a comprehensive cloud platform that allows businesses to build, manage and deploy applications. It offers tools for data analysis, AI and app development. Azure provides some services, such as the Azure App Service, for free always, while others, such as virtual machines and Structured Query Language databases, are free for the first 12 months with some usage limits. 

Microsoft also offers Microsoft 365 (formerly Office 365), which includes popular business software tools like Word, Excel and PowerPoint as well as OneDrive for cloud storage and file sharing. However, Microsoft 365 is paid software, separate from Azure services. 

OpenDrive

OpenDrive is a cloud storage and sharing platform that integrates with multiple operating systems, including iOS, Android and Windows, enabling seamless collaboration and document sharing across devices. OpenDrive also offers Notes and Tasks modules, which help remote teams collaborate on projects and manage tasks. Business plans start at $7 per month or $70 per year.

Intuit QuickBooks Online

Businesses benefit enormously from using the best accounting software to manage their finances, keep track of taxes and monitor accounts payable and accounts receivable. Cloud-based accounting software boosts these applications’ functionality, security, accessibility and scalability. 

QuickBooks Online is an excellent cloud-based accounting solution to consider. It allows you to track all accounting and bookkeeping functions and access real-time financial data, making your business more agile and better able to make strategic decisions. Our detailed QuickBooks Online review outlines this platform’s pricing and numerous cloud-based features. 

Constant Contact

Email is a critical element of any business’s marketing strategy and the best email marketing services can take the guesswork out of creating and running campaigns. Constant Contact is a great example of a cloud-based email marketing service. It includes numerous templates to help you create email lead nurturing campaigns, email newsletters and email promotions. It allows you to conduct A/B testing to optimize your campaigns and provides analytics features to help you pinpoint what’s working and what must change. Check out our comprehensive Constant Contact review for more details.

Clover

Earlier, we touched on the benefits of cloud-based POS software. Clover POS is a top option, particularly for businesses that must customize their POS systems. As our Clover POS review explains, Clover’s easy-to-use and feature-filled POS system can help small business owners manage various business functions, including customer communications, payments, marketing, employee scheduling and inventory management. It also offers industry-specific POS systems for retailers, services and restaurants with specialized features (costs vary by category).

How cloud service usage is accelerating

The implications of cloud capabilities on business are significant. Gartner predicted that worldwide public cloud end-user spending would reach nearly $678.8 billion by the end of 2024, up from 2023’s spend of $563.6 billion. IAAS is expected to grow the fastest in 2024, with a growth rate of 26.6 percent, followed by PAAS at 21.5 percent.

Additionally, Flexera’s 2024 State of the Cloud report revealed that 36 percent of SMBs spend up to $600,000 annually on public cloud resources while 25 percent spend up to $1.2 million. 

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

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.

Jennifer Dublino contributed to this article.