The Cloud, the Cloud, … but what is the Cloud?

The Cloud, the Cloud, … but what is the Cloud?

In recent months I have seen (a perceived) one hundred articles on the promises of “The Cloud”. Questions like: Are you already in the Cloud? have caught my attention. The cloud is heralded as the new saving grace for IT operations. Germany is said to be one of the more reluctant countries. Good, I am thinking…

The question that always comes to my mind when I hear about Cloud Services is: what do they actually mean by “Cloud”? Or better: WHAT is supposed to be consumed from that Cloud?

In this blog post I am trying to structure the field at the same time appealing to the cloud apostles to be a bit more precise when they talk about the benefits of The Cloud.

The first level of order seems to be plain and simple: cloud vs. on-premises. In the on-premises model the user company runs (their own) hardware within the domain of their own premises (i.e. in one of their buildings or computer processing centres). Yes, I understand this. But the other side of this dichotomy is not so easy to grasp. As a logical consequence “The Cloud” equals “off-premises”, i.e. the hardware is run by a third party. So we must be talking about hardware outsourcing: somebody delivers a service, describes this service (preferably in a defined SLA) and I am paying for what I have ordered. OK so far.

But there are different types of cloud computing services and the discussion in the press is sometimes here and sometimes there and rarely really defining what it is about. The following figure shows the different types.


Figure 1: Different types of cloud services (Source: Schubert and Adisa 2011)

I am getting the feeling that a lot of the discussion is on the level of “Infrastructure as a Service” which could be simply called “hardware outsourcing”. (Virtualised) hardware infrastructure is “rented” and the management of the software (implementation, updates, archiving, …) still lies within the responsibility of the user company.

The middle layer, PaaS, might be interesting for software developers.

The trickiest type of cloud service is the “Software as a Service”. I think this is the only type that represents a true innovation. In this model one instantiation of business software is shared by many user companies. The user company receives a client login and uses the system as if it was its own. The actual user might not even be aware that this is a shared model. The most obvious cost benefits of this model are in the area of “licences”. The traditional 1:1 licence model between let’s say an ERP vendor and its customer is now shared out among many user companies. The model is thus said to serve foremost smaller companies that have fewer demands regarding customization (individual changes to the software) and processing power (e.g. processor speed and bandwidth).

The interesting thing is that especially the area of “Enterprise Systems” is the one where most articles say that user companies are hesitant to move their “core systems” into the cloud. It seems to be better accepted in “non crucial” systems (= systems that do not store customer data) such as e.g. Social Software for joint work (collaboration).

So, looking at the discussion this is what we can see:

IaaS is the renting of hardware (in most cases as a “private cloud”, i.e. for the exclusive use of one customer). Greatest benefits: always up-to-date technology that is serviced by somebody else. This seems to be the right option for companies that do not want to tie investments in (fast aging) technology and that do not have a big computer department that can look after their hardware systems.

PaaS is an interesting option for software developers or software development teams.

SaaS is an interesting new avenue but seemingly only for non-key systems (no critical company data). This is where the biggest savings can be realised because the model is based not only on the joint use of hardware but also on the pooling on licence cost. This covers two aspects: the one-off licence cost when the software is first “bought” and the software maintenance cost that is due in the years of use. The maintenance cost of ERP Systems is typically between 15 and 30 percent of the initial licence cost – a big cost component that can be reduced in the SaaS model.

My assessment: cloud services are an attractive option for the consumption of information technology. We will see a first wave of use from the bottom to the top (first hardware, then first trials with shared software). In the area of shared software (SaaS) companies will start with non-key systems and only move mission-critical systems after a reassuring time of good experiences with cloud service consumption.

A few definitions from one of our papers (Schubert and Adisa 2011).



Cloud computing

The operation of infrastructure, platforms and software in a virtualized environment whose components can be accessed and used over the Internet. The word “cloud” signals that services are offered without the need of explicit knowledge about where these services are physically located.

Cloud service

Any provision of access to computing devices or human resources including hardware, software, networks or staff which are based on a cloud computing delivery model.


The configuration of a physical server that allows installing multiple instances of virtual servers on a single machine.

Software as a Service (SaaS)

The provision of an application which is hosted (off-premises) by a provider as a service to customers who access it via the Internet. In contrast to application service providing (ASP), SaaS is based on a multi tenant model where many customers are using the same program code but have their own private data spaces. SaaS is only suited for software “out of the box” that does not require much customization or integration with other applications.

Platform as a Service (PaaS)

The provision of resources required to build applications and services (software development environment) to a customer by an outsourcing provider. Typical use scenarios are application design, development, testing and deployment.

Infrastructure as a Service (also called hardware as a service) (IaaS)

The provision of computing resources (CPU cycles, memory, storage, network equipment) to a customer by an outsourcing provider. In this service model it is possible to share a server among multi tenants. The service is typically billed on a utility computing basis (resource consumption).

Private cloud

The provision of a cloud computing environment that is based on a collection of physical servers that are exclusively run for one customer. When referred to in an outsourcing scenario, the customer rents physical servers as a dedicated resource.

Public cloud

The provision of a cloud computing environment that is based on a collection of virtual servers where multiple customers share a physical hardware. In this outsourcing model the customer rents virtual servers on demand.

Related literature:

Schubert, Petra; Adisa, Femi (2011): Cloud Computing for Standard ERP Systems: Reference Framework and Research Agenda, Koblenz: Department of Computer Science, University Koblenz-Landau, Working Report No. 16/2011, 2011.

Related Information

Publication date: 2014-03-06