While the term ‘cloud computing’ has been one of the most over-used IT catch-phrases of the past several years, there is a lot of merit in exploring these types of solutions for almost any business. Unfortunately, I hear a great deal of confusion and inconsistency in using the term “cloud” in both conversation and print. This confusion especially translates to business executives who know that the world is moving toward cloud computing but don’t always understand the basics of the terminology to be able to truly assess value and risk so they can lead their organizations in the right direction.

Well, I may be able to offer some assistance. I recently read an article in the Harvard Business Review entitled “What Every CEO Should Know About the Cloud”, written by Andrew McAfee, Principal Research Scientist at the Center for Digital Business in the MIT Sloan School of Management.

While this is an excellent article well worth the read, what I really liked about it was a brief sidebar called “What is the Cloud?” which provides the best, most concise description of cloud computing that I have seen to-date. This quick read should help anyone – especially business executives – understand the basic terminology of cloud computing. Here’s that sidebar:

What is the Cloud?

The cloud computing industry is growing and evolving rapidly—and also generating lots of jargon. As a result it can be difficult to understand exactly what the cloud is and how its offerings differ.

To oversimplify just a bit, those offerings can be divided into three categories: raw computing capacity, computers that are ready for software, and software itself.

The first of these, called Infrastructure-as-a-Service (IaaS), is the most basic; it’s a server or servers out there in the cloud, or a bunch of storage capacity or bandwidth. IaaS customers, which are often tech companies, typically have a lot of IT expertise; they want access to computing power but don’t want to be responsible for installing or maintaining it.

The second tier is called Platform-as-a-Service (PaaS). This is a cloud-based platform that companies can use to develop their custom applications or write software that integrates with existing applications. PaaS environments come equipped with software development technologies like Java,.NET, Python, and Ruby on Rails and allow customers to start writing code quickly. Once the code is ready, the vendor hosts it and makes it widely available. PaaS is currently the smallest segment of the cloud computing market and is often used by established companies looking to outsource a piece of their infrastructure.

Software-as-a-Service (SaaS), the third category, is the largest and most mature part of the cloud. It’s an application or suite of applications that resides in the cloud instead of on a user’s hard drive or in a data center. One of the earliest SaaS successes was Salesforce.com’s customer relationship management software, which provided an alternative to on-premise CRM systems when it was launched, in 2000. More recently, productivity and collaboration software—spreadsheets, word processing programs, and so on—has moved into the cloud with Google Apps, Microsoft Office 365, and other similar offerings.

Cloud offerings share a few similarities across these three categories. First, customers rent them instead of buying them, shifting IT from a capital expense to an operating expense. Second, vendors are responsible for everything “beneath the hood”—all the maintenance, administration, capacity planning, troubleshooting, and backups. And finally, it’s usually fast and easy to get more from the cloud—more storage from an IaaS vendor, the ability to handle more PaaS projects, or more seats for users of a SaaS application.

Some large organizations are planning to build “private clouds” that they will own and maintain. These are essentially data centers that use many of the cloud’s technologies. Private clouds hold the promise of offering all the advantages of the public cloud while addressing security and regulatory concerns. However, I’m skeptical. The scale economies of public cloud companies lead to great cost decreases over time, and because their environments are intensely competitive, those decreases will surely be reflected in their prices. I doubt that most private clouds will be able to keep up.

Be sure to check out the full Harvard Business Review article here.

Posted by: Steve Short, President, NetLink Resource Group