Cloud Computing 101: Learning the Basics

To hear the experts tell it, cloud computing may be the most innovative technology development in decades—and the greatest thing since sliced bread—or should be dismissed as a marketing tool for existing know how that's as old as computers themselves and no more revolutionary than pre-packaged bagels.

John Block | Botanica | Getty Images

"Cloud computing is fundamentally new," says Bryan Plug, CEO of Accept Corporation, a management software service company.

"It's an improved way of acquiring business services and is the proverbial 'better, faster, cheaper' way to run many business functions. It's not just a marketing tool," Plug adds.

"The concept of cloud computing is not new," counters Bill Abram, founder and president of Pragmatix, an IT services and technology consulting firm. "In fact, the term 'cloud' is used as a metaphor for the Internet. It's mainly a marketing term."

OK, food analogy aside, we can't settle the debate between Plug and Abram on the uniqueness of cloud computing. But there are some issues that can be resolved without too much controversy: just what is cloud computing, who uses it, and what are the benefits and risks?

Cloud Computing - A CNBC Special Report
Cloud Computing - A CNBC Special Report

So here are some questions and answers that should help shed more light on the subject and create a better understanding of this advertising gimmick—or cutting-edge revolution.

What is Cloud Computing?

The official definition from the National Institute of Standards and Technology reads: "Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services)that can be rapidly provisioned and released with minimal management effort or service provider interaction."

Translation? Accessing the Internet anywhere, anytime and being able to use any or all of the data and applications that you want.

"Consumers don't completely understand it yet and there's been a lot of hype, but it's having your data or software stored somewhere besides your PC or Mac and being able to get it through the Internet," explains Chris Geiser, CTO of The Garrigan Lyman Group, a digital marketing and advertising agency.

"The economics are compelling and as Internet speeds increase, cloud services will continue to grow."" -Juniper Networks, Mike Marcellin

When the technical jargon is stripped away, cloud computing can be grasped on its basic level— anytime, anywhere computing—without the user ever having to know much about the technology.

Even if not fully understood, cloud computing usage has nearly become universal as we'll see in just a bit.

How Does It Work?

In simplest terms, cloud computing involves delivering hosted services over the Internet. The service end is where the data or software is stored and the user end is a single person or company network.

"Cloud computing minimizes the hardware, like memory, and application requirements, like word processing, for the users and pools those resources in the 'cloud," says Danny McPerson, CSO of Verisign.

So, a company in the business of hosting has specified data stored on its servers, a user fires up their computer, connects to the web (and to the servers holding their data), clicks on their application software and away they go.

Andy Reynolds | Photographer's Choice | Getty Images

What gets somewhat mind-numbing are the kinds of storage systems services used in cloud computing. There are three basic 'alphabet soup' levels of storage capabilities, but there's no real need to go into those here. Any or all three can be offered by the same provider—for a price.

And there are so-called public, private or hybrid clouds; public meaning the data is accessible to anyone, private being subject to a company's firewall or security system, and hybrid, which combines both public and private.

But it's fairly safe to say that most users are more than likely to be content knowing their data is stored somewhere other than their computer and they have access to it whenever and whereever they go online.

Who Uses Cloud Computing?

You are probably using it right now.

"Consumers and businesses utilize the cloud on a daily basis even if they're not aware of it," says Mike Marcellin, VP of product marketing and strategy at Juniper Networks , which offers cloud ready network solutions. "Recent surveys show that most companies are using the cloud in some way."

If you use email, or go to a social network and post photos, access online document software, or use your company's hardware/software, you're probably using the cloud. You may also use it to store online tax or financial records. You can also use cloud computing to back up files for storage off your PC or Mac.


Businesses such as hotels use it for consumers to make reservations and a major electronics retailer is using it to fill their online orders. Sending a picture to a Facebook friend today? You are headed for the clouds.

Where Did Term Cloud Computing Come From?

The concept of cloud computing dates back to the 1960's—and so the argument over whether everything old is new again.

The phrase originates from the cloud symbol used by flow charts and diagrams to symbolize the Internet.

The diagram above underscores the idea that any computer connected to the web has access to a pool of computing power, applications and files.

The first reported public use of the term came in August of 2006 at a search engine conference in San Jose, Calif. when then Google CEO Eric Schmidt described one approach to data storage as "cloud computing."

But in a sign of the ever-competitive Internet wars, research shows that Schmidt may have been trying to pre-empt Amazon,which was about to release its Elastic Compute Cloud system later that month.

Which Companies are Climbing to the Cloud?

Who Provides Cloud Computing Services?

Dozens of firms are providing 'clouds' in the U.S. and other countries. Some are well known, others not so much.They generally fall into three categories of service: software, storage and computing power, or platform providers that give site developers tools to build and host applications. Some do all three.


Big or small, all see this as a natural way to make money in a very competitive field.

"Large-scale content providers are looking for new revenue streams and to diversify their businesses," says Michael Rabinovich, professor of the EECS Department at Western Reserve University in Cleveland, Ohio. "They have data centers, procured power supply, and Internet connectivity. It's easy for them to do this."

Some names might be surprising as they may be better known as content providers or consumer sites. Here are just a few of the major players:

Amazon: considered one of the innovators in cloud computing since it began offering services in 2006. Amazon has thousands of small business and individual users along with customers like the New York Times and Eli Lilly .

Google: in what might have been a strike again Microsoft , the internet search giant launched Google Apps in 2007. Customers include small businesses and colleges like Northwestern University.

Microsoft: the tech giant has made its windows operating system available with cloud computing through the Azure program. Microsoft also offers various business services. Customers using the program include Epicor and Micro Focus.

NetSuite: founded by Oracle CEO Larry Ellison, NetSuite offers web based applications for small businesses including Wolfgang Puck Coffee. started in 1999, Salesforce is considered a pioneer in cloud computing, with its software as a service product. Customers include financial services, media and health firms as well as retail companies.

GoGrid: the Canadian based firm is a division of ServePath. It's said to be one of Amazon's chief competitors in cloud storage. Customers are mostly start-up firms and a few bigger companies like Novell.

How Safe Is Cloud Computing?

Safety is a bit of a touchy issue as recent online breaches with Sony's PlayStation Network have shown. Hackers have been able to use Amazon's Elastic Computer Cloud to access information by setting up a bogus account.

Cloud Computing - A CNBC Special Report
Cloud Computing - A CNBC Special Report

"By using cloud computing, a company opens a door into its data and that door is an attractive target for attacks," says William Morriss, attorney for Frost Brown Todd. "That's because a cloud provider holds the data for multiple companies and that's worth stealing."

Morriss adds that it's a case of due diligence for companies hiring cloud services to make sure those firms have as many security walls as possible. But as Sony found out, that may not be enough.

"A firm buying cloud computing should make plans for the unfortunate event that something goes wrong," Morriss argues. "That includes legal provisions for liability."

What Is Cloud Computing's Future?

It's big, if the numbers pan out. According to analyst firm Gartner, the marketplace for cloud computing will grow from $46.8 billion in 2008 to more than $150 billion by 2013. An IBM spokespersonsays the firm is investing millions of dollars in cloud computing servicesand expects that to generate $7 billion in revenues by 2015.

"The economics are compelling and as Internet speeds increase, cloud services will continue to grow," says Juniper Network's Marcellin.

And Marcellin says cloud computer firms are already gearing up for the next big thing.

"Mobile services are the coming frontier for cloud delivered services," Marcellin says. "So far, the user experience for mobile devices hasn't been that good. But that will evolve."

Your Test: Multiple Choice or Essay?

Okay, there's no test here but if you ever do have to take one, this guide should help you get your head into cloud technology. Wait, maybe you can take an examination of sorts: Is sliced bread as good as bagels in a plastic bag? We'll grade on a curve.