What means that an organization uses servers in the cloud instead of purchasing and maintaining the servers on site?

The exact benefits will vary according to the type of cloud service being used but, fundamentally, using cloud services means companies not having to buy or maintain their own computing infrastructure.

No more buying servers, updating applications or operating systems, or decommissioning and disposing of hardware or software when it is out of date, as it is all taken care of by the supplier. For commodity applications, such as email, it can make sense to switch to a cloud provider, rather than rely on in-house skills. A company that specializes in running and securing these services is likely to have better skills and more experienced staff than a small business could afford to hire, so cloud services may be able to deliver a more secure and efficient service to end users.

Using cloud services means companies can move faster on projects and test out concepts without lengthy procurement and big upfront costs, because firms only pay for the resources they consume. This concept of business agility is often mentioned by cloud advocates as a key benefit. The ability to spin up new services without the time and effort associated with traditional IT procurement should mean that it is easier to get going with new applications faster. And if a new application turns out to be wildly popular, the elastic nature of the cloud means it is easier to scale it up fast.

For a company with an application that has big peaks in usage, such as one that is only used at a particular time of the week or year, it might make financial sense to have it hosted in the cloud, rather than have dedicated hardware and software laying idle for much of the time. Moving to a cloud-hosted application for services like email or CRM could remove a burden on internal IT staff, and if such applications don't generate much competitive advantage, there will be little other impact. Moving to a services model also moves spending from capital expenditure (capex) to operational expenditure (opex), which may be useful for some companies.

From internet banking to deploying your own software for your customers, cloud computing comes with significant benefits, but also some business risks.

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Cloud computing has 3 main elements.

Cloud-based software refers to computer programs that use the internet to deliver digital tools and store documents, records, digital assets and data on remote servers or computers in data centres. It is often referred to as Software as a Service (SaaS).

Cloud-based infrastructure refers to remote computers or data centres that you are able to use for computing, storage, and networking on demand, on a pay-as-you-go basis.

Cloud-based platforms refers to complete development and deployment environment. It is typically used to build, test, deploy, manage and update software that is written for your business. These platforms are typically based in remote data centres.

Cloud-based software

Cloud-based software refers to programs accessible via any internet-connected device like a computer, laptop, tablet, or mobile phone.

Cloud-based software examples

• Internet banking
• G Suite (word processor, spreadsheet, email, file storage)
• MYOB (accounting software)
• Dropbox (file storage)
• Canva (design and presentation tools and templates)
• Salesforce (customer relationship manager)
• Zoom (video conferencing).

Cloud-based software is an alternative to loading software on your computer and saving information and documents to your computer as local files, or as files saved on hard drives, or as a backup.

Common business software provided using this model typically requires a subscription and is accessed via the internet with an ID and password.

In recent years, cloud-based software has become the preferred method for many software companies to sell software as a service to business and personal customers.

Cloud-based software benefits and risks

Benefits

• Easy to set up and use immediately.
• Easy to access remotely (e.g. on any internet-connected device like a computer, laptop or mobile phone, easy access for working-from-home models).
• Easy to share access with multiple staff members in the work environment and remotely.
• Easy to share documents and business records with your professional service providers (e.g. accounting, legal).
• Apps for most common business software are available for tablets, mobile phones, and other devices.
• Software versions are updated regularly.
• Many common business tools are compatible with and interact seamlessly with other tools and digital platforms (e.g. transfer of data to the Australian Taxation Office from cloud-based accounting software).
• Does not require expensive networking infrastructure in your business premises (e.g. a network server, backups, highly skilled staff).
• Can provide storage infrastructure and data back-up.
• The software can remain up and running during a natural disaster or other incidents.

Risks

• Rent rather than buy: Unlike purchasing a piece of software that may be used for many years, albeit out of date, the cloud-based software model requires monthly or yearly payments. This creates an ongoing expense for your business.
• Vendor lock-in: Your data may not be portable to another competing service. Access to your data may be lost if you decide to close your account.
• Workflow interruptions: Updates may temporarily interrupt your workflow.
• Lack of control: The company providing the software may change it as you are using it. This could be something as small as a menu change, or a major change such as an overhaul of the interface or removal of a useful function.
• Downtime: As the provider controls and manages the service, maintenance, cyberattacks or network issues may impact on availability.
• Internet reliability: Any loss of internet access will result in the software becoming inaccessible.

Cloud-based infrastructure benefits and risks

Cloud-based infrastructure describes hardware, resources, storage, and network resources. In order for your business to host services and applications in the cloud, you need cloud infrastructure.

Cloud-based infrastructure examples

• DigitalOcean
• Linode
• Amazon web services (AWS)
• Cisco Metacloud
• Microsoft Azure.

• High availability, even in the event of a natural disaster.
• Your business can rent space on servers that you are able to manage remotely.
• Ease of backups.
• Ease of scaling server size and disk space (rapid elasticity).
• Choice of data allowances.
• Pay only for what is used.
• Remote technicians at the provider.
• Your data is in Australia and overseas.
• Able to be logged into from any location.
• Useful to run your own business software in your own cloud space without needing to manage the CPU, memory, data size, and network connectivity from your own location.
• Software applications may be ready to add to your server (e.g. WordPress, Woo for building a website).

• Rent rather than buy: Regular monthly or yearly payments are ongoing expenses on your profit and loss statement.
• Shared infrastructure: Resource pooling by providers means other businesses share their own designated area of the same server, although it may appear separate.
• Resource allocation: Resources may be able to scale up but not down.
• Data location: Although cheaper vendors outside of Australia, government and other business contracts may require Australian-based providers.
• Slow to transition: Changing providers requires porting software and data to your chosen new provider.

Cloud-based platforms enable large enterprise businesses to build, test and deploy applications, and store, back up, and recover data.

Types of cloud-based platforms include:

• Public cloud: Third-party providers that deliver computing resources over the internet for multiple businesses.
• Private cloud: Computing resources for use by a single business customer on dedicated resources that are not shared.
• Hybrid cloud: A combination of public and private cloud platforms. Data and applications move seamlessly between the two. Less sensitive data is provided on the public cloud platform and sensitive data in a private cloud area.

Cloud-based platform examples

• AWS Elastic Beanstalk
• Google App Engine
• Apache Stratos
• OpenShift
• IBM Private Cloud
• Cisco.

Benefits

• Platforms provide a combination of cloud-based software and cloud-based infrastructure.
• Resources can grow as the business grows.
• Resources can be scaled up or down in the moment to meet traffic demands.
• Support, provisioning and managing infrastructure is typically provided.
• Pay only for what you use.
• Services are typically secure and maintain very limited downtime.

Risks

• Substantial investment: Platform services at the enterprise level may require considerable commitments of time, resources and planning to implement.
• Complexity: Implementation can require significant due diligence and coordination across many different areas of the enterprise.
• Vendor lock-in: It may be difficult to change to a new platform.

Handing over your data to any cloud-based service entails a level of risk.

This risk increases if you choose to use offshore vendors. The Australian Security Cyber Centre (ASCC) recommends not outsourcing information technology to providers outside of Australia.

Even if the overseas vendor has an Australian-based facility, it is important to note that foreign-owned vendors operating in Australia may be required by their government to provide access to data held by the provider.

This is because their government's laws are not under Australian jurisdiction.

For more information visit the ASCC's cloud computing security considerations.

Key areas to consider when choosing a provider are:

• availability of data and business functionality
• protecting data from unauthorised access
• handling security incidents
• business continuity and reputation in the event of an incident.

Contracting cloud-based services

For many small businesses, using existing cloud-based software will meet many business needs.

For businesses with needs beyond cloud-based software, IT solutions may involve cloud-based infrastructure or platforms.

Once a suitable provider has been identified, a contract including a service level agreement is recommended.

Consider including provision for:

• who has access to your customer's data on the provider's side
• how security is managed by the provider in order to prevent customer data loss or how it could be used
• any ISO (International Organization for Standardization) standards covered by the provider and independent verifications of the standards adhered to by the provider.

Discuss your needs with your IT, business, and legal advisers to ensure the contract protects your business.

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• Last reviewed: 24 Nov 2022
• Last updated: 24 Nov 2022