"Cloud computing" refers to providing Internet-based access to shared resources that are available on demand. The resources can be a combination of hardware, software and other information, and the resources can be the use of a single set of hardware and software for multiple purposes or a single purpose, either for a single company or for multiple customers. This "shared" use is very different from outsourcing which uses the infrastructure of the customer, managed by a third party. It is also a departure from the traditional enterprise license of software or purchase of on-premises hardware equipment.

The important characteristics of cloud computing are resource pooling (the resources are dynamically assigned and reassigned according to demand), flexible access (accessible across a variety of platforms such as laptops, PDAs and mobile devices) and rapid elasticity (the services can be provisioned elastically and rapidly, frequently automatically). However, the term "cloud computing" actually encompasses three basic business models that can be made available through a variety of methods.

The three basic business models are:

• Infrastructure as a Service (IaaS): The customer receives access to additional IT infrastructure, such as storage, processing or network bandwidth or other resources that is often shared with other customers.

• Platform as a Service (PaaS): The customer can develop and operate applications by accessing a computing platform provided by the cloud service provider, which may include programming tools, databases, security software and other applications that make up a complete development platform.

• Software as a Service (SaaS): Rather than receiving an enterprise license to software to be installed on the customer's own on-premises servers, the customer receives access to a software application or suite of applications remotely and on-demand.

Each of the three business models can be provided in a variety of methods but there are four options that have emerged as the most prominent:

• Public Clouds: Infrastructure, platform and software are typically provided through services that are usually accessible through online terms of use and paid for based on actual usage. Amazon Web Services is an example of a company that provides cloud computing capabilities through a public cloud.

• Private Clouds: A private cloud is where dedicated cloud computing resources are made available to specific customer. These services are typically provided through negotiated service agreements but because the resources are dedicated, may result in a greater capital investment.

• Hybrid Clouds This model may be used by a customer who desires the ease of use of a public cloud but desires some level of dedicated resources afforded by a private cloud:

• Managed Clouds: This model is actually similar to outsourcing except that rather than having the customer owning the infrastructure and outsourcing its management to a third party, the customer owns the cloud computing capability and is outsourcing the management of the cloud to a third party.

Our next article will discuss some of the key legal issues surrounding cloud computing service agreements from the perspective of the vendor and the article after that will discuss some of the key legal issues from the perspective of the customer.

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