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Updated Dec 20, 2023

Cloud Computing: A Small Business Guide

Broadband internet access and the ubiquity of mobile devices make cloud computing a viable option for small businesses everywhere.

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Nadia Reckmann, Contributing Writer
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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When it comes to data storage, processing and collaboration, many businesses choose the flexibility and convenience of cloud computing over traditional local hosting and on-premise software. 

With cloud computing, you can access and store data and applications online instead of on a hard drive. If your company uses Google Docs for editing and document collaboration, Dropbox or Google Drive for file storage, Slack for cross-team communications, or online CRM software for managing sales, you’re using cloud computing. 

Working in the cloud offers small businesses many benefits, including enhanced collaboration, easy access and fast turnaround. However, cloud computing drawbacks include security concerns and fewer customization options. We’ll explore cloud computing, how it works, cloud services to consider, and the pros and cons of cloud computing for small businesses. 

What is cloud computing?

Cloud computing is the on-demand delivery of computing services, including applications, data storage and data processing, over the internet. You’ll usually pay for cloud computing services on a pay-as-you-go basis, so you pay only for the applications and cloud services you use. This approach helps lower your business’s operating costs and allows for flexible scaling. 

In today’s ever-changing business climate, small business owners must be able to access data and applications from their computers, tablets or mobile phones, whether in the office, out in the field or on the road. Cloud computing provides this anywhere access via an internet connection.

Did You Know?Did you know
Cloud computing gets its name from the practice of drawing the internet infrastructure as a cloud in network flowcharts and patent diagrams from the 1990s.

What is cloud computing used for?

Chances are, you’re using cloud computing right now, even if you don’t realize it. Cloud computing makes it possible behind the scenes, whether you use an online service like Gmail or Outlook 365 to send an email, collaborate on a document, store files or stream a video. [Related article: Best New Gmail Features for Business]

Here are some of the most common cloud computing uses: 

  • Cloud storage: Cloud services ensure your data is stored in an offsite cloud storage system, allowing easy access from any internet-connected location or device. Cloud storage allows you to share files securely and sync files across devices. Popular cloud storage services include Dropbox, Microsoft OneDrive and Google Drive. [Learn how to back up your computer to Google’s cloud.]
  • Cloud backup services: are failsafe solutions if your company experiences a server crash, cyberattack or other data loss. The best cloud backup services combine storage, data synchronization and restoration, real-time backups, archiving, and high-level security. Many cloud storage services also provide cloud backup functionality.
  • Cloud hosting: Cloud hosting services facilitate multiple types of information sharing, including email services, application hosting, web-based phone systems and data storage. A cloud hosting service can host your business website, manage databases and house domain names. Because cloud hosting services are offsite, scaling to manage peak loads is effortless. [Follow these 12 tips to build an effective business website.]
  • Software as a service: Software as a service (SaaS) is a cloud-based application delivery solution. Businesses can use SaaS solutions in many operational areas. For example, you can implement SaaS CRM software like Salesforce for sales management, accounting software like QuickBooks Online for finance management, and email marketing software for enhanced marketing communications. (Read our review of Salesforce and our QuickBooks Online review to learn more about these SaaS solutions.)
Did You Know?Did you know
The best POS systems for retail stores, restaurants, and mobile businesses offer affordable cloud-based SaaS subscription plans with regular updates and customer support.

What’s the difference between cloud hosting and traditional web hosting?

A web host houses your organization’s website and makes it accessible on the internet. You can choose a traditional web host or a cloud hosting service. Here’s more on traditional hosting vs. cloud hosting. 

Traditional web hosting

A traditional web host uses physical server space to handle its clients’ web hosting needs. Within the traditional hosting space, services are either dedicated or shared. Each option has its merits.

  • Dedicated hosting: With dedicated hosting, a client pays for an entire server. Servers have specific amounts of processing power, bandwidth, memory and hard drive space. Dedicated hosting can be expensive.  
  • Shared hosting: With shared hosting, companies share one server. Each user pays for a specific amount of storage space on that server and shares its bandwidth. Shared hosting costs less than dedicated hosting. However, your website may load more slowly because the shared server supports web traffic for multiple companies. You’ll likely pay more if your website exceeds the shared service’s limitations.

Cloud web hosting

While traditional web hosting relies on physical server space, cloud-based hosting carves virtual server space for each user. These are some key aspects of cloud web hosting: 

  • You pay only for services you need. Cloud hosting services generally use a pay-as-you-go model.
  • Multiple servers handle the load. With cloud hosting, the hosting bandwidth load is spread across multiple servers.
  • You get excellent uptime. Since multiple servers handle each hosted site, downtime is rare, barring a massive power outage. Even if one website has a problem or experiences a high volume of visitors, other sites on the same service aren’t affected.
  • It’s scalable. Cloud hosting companies use virtual space that can be scaled up or down at a moment’s notice.

Editor’s note: Looking for the right cloud backup service for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What are the main cloud service models?

Cloud-computing services range from data storage to functional programs, including accounting software, customer service tools and remote desktop hosting. These services can be categorized into three models: infrastructure, platform and software as a service.

  • IaaS: Infrastructure as a service (IaaS) allows you to rent IT infrastructure, including servers, virtual machines, storage and networks, from a cloud provider, typically on a pay-as-you-go basis. IaaS offerings help small businesses take advantage of setups that handle different workload needs. Two key players in this field are Amazon Web Services and Microsoft Azure.
  • PaaS: Platform as a service (PaaS) gives software developers access to cloud-based tools like APIs, gateway software and web portals. Services like Salesforce’s Lightning, the Google App Engine and the AWS Elastic Beanstalk are popular solutions.
  • SaaS: SaaS offerings give users access to software over the internet. SaaS applications are accessible via a web browser, desktop client or an API that integrates with a user’s desktop or mobile operating system. SaaS applications help workers collaborate on projects, download important files and work directly on specialized computer programs. In most cases, SaaS users must pay a monthly or annual subscription fee. Services like Microsoft Office 365 and Google Workspace are examples of SaaS applications.
FYIDid you know
Aside from Google Workspace, Google business tools include Google Business Profile, Google Ads, and Google Analytics.

How do cloud services store their data, and how secure are they?

Cloud services store data and host services in three primary ways: public, private and hybrid cloud. Cloud services may pose a security risk if you choose a provider whose storage model doesn’t align with your business’s size and needs.

  • Public cloud: A public cloud service is built on the provider’s external platform. Users get their own cloud within a shared infrastructure with this offsite service. The cloud provider offers everything from system resources to your cloud system’s security and maintenance. Since it’s managed by an outside company specializing in cloud services for various customers, a public cloud system is an excellent choice for organizations seeking elasticity, cost-effectiveness and the latest technology.
  • Private cloud: A private cloud service is a cloud platform built within your walls using your hardware and software. Since your internal IT team manages your private cloud, this model is ideal for businesses that want exclusive access, more flexibility and greater control. However, this is a more expensive option.
  • Hybrid cloud: A hybrid cloud is a mixture of private and public clouds. In a hybrid system, an organization’s IT team manages part of the cloud in-house, while the rest of the cloud is offsite. A hybrid cloud system is perfect for an organization that wants to manage business data (such as customer files) in-house but wants to store less-sensitive information with a third party.
Key TakeawayKey takeaway
The three main cloud-storage service options are public, private and hybrid clouds. Choose a service that aligns with your business's size and needs.

What are the benefits of cloud computing?

Business cloud computing use is on the rise. According to Foundry’s 2020 cloud computing research, 92% of companies use services connected to or run in the cloud. Additionally, Flexera forecasts that two-thirds of SMB workloads will be in the cloud in 2022. Considering that the pandemic made online work ubiquitous, the trend is likely to continue. 

Cloud computing can help businesses save time and money by boosting productivity, improving collaboration and promoting innovation. Here are some of the top benefits of adopting cloud services for your small business:  

  • Data is extremely accessible. Businesses use cloud computing to access information anywhere using an internet-connected compatible device. Instead of storing data on your computer or a server in your office, cloud computing stores data online. Information is available from a central web-based hub that gives anyone with proper credentials instant access from any location with an internet connection.
  • It maintains consistency between users. When multiple team members work on the same digital file, it’s easy to make mistakes. Since cloud-hosted files exist in a central location, data is automatically synced between all devices, and people always have access to the most up-to-date file version.
  • It scales easily. As your business grows, you can easily adjust the number of users with access to cloud applications; the same is true if you need to scale down. You pay for only what you use and never have to worry about running out of capacity or adding an unnecessary expense.   
  • It facilitates remote work. Businesses often rely on specialized software employees wouldn’t have on their home computers. Cloud computing lets users access files and specialized applications as if they were in the office. Considering that 1 in 3 remote workers may quit if required to return to the office full-time post-pandemic, cloud computing’s remote work benefits are especially critical. 
  • It’s easy to back up and restore data. Catastrophic data loss that devastates a business can happen at any time due to natural disasters, power surges or hardware failure. When an organization stores or backs up critical data, files and applications in the cloud, this information remains safe and accessible. 
  • It’s cost-efficient. While buying and maintaining hardware and networking equipment requires time, expertise and money, a cloud computing provider stores data for you without all the downsides. Additionally, setting up business operations in the cloud requires a smaller initial investment than creating an in-house infrastructure and a dedicated IT team. A cloud setup allows you to be more flexible with your budget and pay for only what you use. Prices for business-oriented cloud services are still a monthly or annual expense, but it’s a manageable and predictable expense.
If you or members of your IT team are interested in enhancing their cloud expertise, consider Google's Cloud Certifications options to boost knowledge and earning potential.

What are the drawbacks of cloud computing?

While there are many benefits to moving your business operations to the cloud, you should be aware of several potential downsides. 

1. Cloud computing relies on an internet connection.

By definition, cloud computing services require an internet connection. If you have an unstable or low-speed connection, your team will have trouble accessing the cloud applications and data they need to perform their work. Additionally, repeated downtimes, lags and errors due to a spotty internet connection may reduce their productivity. 

Ensuring your team has access to a high-quality, high-speed connection can easily address this cloud computing drawback. 

2. It could present security concerns.

Even though 52% of companies experience better security in the cloud than with onsite IT environments, a perceived lack of cloud security remains a concern for many small business owners. 

The key to maximizing security is finding a reputable cloud service provider, understanding its contingency plans in the event of a security breach and taking your own steps to bolster security. To improve cybersecurity, ensure there’s sufficient data encryption, implement additional authentication measures, introduce a data loss prevention (DLP) solution, and establish clear communication between management, your IT team and the cloud provider to minimize security incidents and formulate a clear response plan. [Follow these cybersecurity tips that take less than an hour to implement.] 

Ask cloud computing vendors these 10 security questions before signing up for their services:

  1. Who can see my information?
  2. Is my data located at multiple data centers in different locations so it’s protected from regional attacks?
  3. What redundancies do you have in place to protect my data?
  4. What specific measures do you take to encrypt my data?
  5. How do you manage encryption keys?
  6. What happens – and how will you restore my data – if there’s a crash or cyberattack?
  7. What information security certifications do you have?
  8. Are you compliant with the most current security protocols?
  9. What can go wrong during implementation?
  10.  Are you a reseller? If so, who is responsible for service and support?

3. Cloud computing presents compliance challenges.

Compliance is an issue for any business that uses backup services or cloud storage. In fact, according to a survey by Statista, 44% of companies consider compliance to be their biggest cloud computing challenge. 

Every time your company moves data from internal storage to a cloud, it must comply with industry laws and regulations. For example, healthcare organizations must comply with HIPAA rules, retail companies must comply with SOX and PCI DSS regulations, and companies dealing with the European market must comply with GDPR standards

While many established cloud providers have aligned themselves with relevant accreditation programs, your company is ultimately responsible for ensuring that all data processes and workloads are compliant. 

Conduct a regular compliance audit that includes information from all your cloud providers.

4. It reduces visibility and control.

While cloud computing offers the benefit of not managing complex infrastructure like servers in-house, saving your company time, money and effort, this means less control over your company’s software, systems and computing assets. 

With less oversight and control, it becomes harder to assess security system efficiency, implement incident responses, or get a complete overview of data and user activity to identify abnormal patterns and potential breaches. 

To mitigate this lack of control, assess every new cloud provider’s allowed visibility level, and determine what measures it takes to prevent data breaches. You can also use a monitoring tool or set up an API to help you get insights into your data. 

5. Implementation requires training.

Implementing any new technology requires training personnel and establishing an effective troubleshooting system during and after the launch. Initially, you may also encounter resistance among your employees, especially those unfamiliar with cloud technology.

However, once you establish the onboarding process, determine IT team members responsible for implementing and adopting cloud services, and outline the benefits of cloud operations, you can get your company on track in no time. 

Key TakeawayKey takeaway
Do your due diligence with the services you investigate to inquire about their security protocols and compliance standards, train your staff about using the cloud solution, and follow best practices to ensure your data is safe from unauthorized users.

Additional security considerations for cloud computing

While we addressed potential security issues as a cloud computing drawback above, it’s essential to understand precisely what can go wrong in a cloud computing setup. 

According to Check Point’s 2022 Cloud Security Report, some of the most pressing cloud security challenges are incorrect cloud infrastructure setup, unauthorized access and insecure APIs.  

If you’re considering moving your operations to the cloud or implementing cloud services, consider these top cybersecurity risks.

Misconfiguration of cloud computing security settings

Ease of access makes cloud computing attractive to many small businesses, but it’s also the source of potential security risks. In many organizations, employees have varying cloud service access levels. The more people and access levels involved, the easier it is to overlook an unauthorized access setting. 

Additionally, the infrastructure’s cloud nature means companies must rely on their provider’s security controls. These controls aren’t always straightforward, opening more avenues for misconfiguration.

To mitigate this security risk and streamline access management, track all levels of access your team members have to various cloud services. You can even create a basic tracking document in Google Sheets if you keep it updated. Conducting regular cybersecurity audits that include security details and protocols from all cloud providers can also reduce the risk. 

Insecure APIs

APIs allow better control and visibility into your cloud systems and applications. However, external APIs are often insecure and provide an entry point for potential cyberattacks that can compromise confidential data and manipulate services. 

According to the Salt’s State of API Security Report for Q1 2022, API attack traffic increased nearly 700% from December 2020 to December 2021, showing that it’s a serious threat to small businesses. 

Building in-house APIs can significantly reduce this security risk. However, not all businesses have the internal expertise or resources to do this. To mitigate the risks, implement authentication and authorization practices, encrypt traffic using TLS/SSL, validate input, log API activity, use API firewalls, and conduct a regular audit and penetration testing to identify and fix outdated APIs.

Data loss

Two-thirds of the respondents in Bitglass’ 2020 Cloud Security Report named data loss and leakage as their biggest cloud computing security concern. Aside from malware attacks, cloud data can be lost if the cloud provider accidentally deletes it, if there’s a physical catastrophe like a fire or earthquake that damages remote servers, or if an encryption key is lost. 

To reduce the risk of data loss, ensure you back up all your data stored in the cloud. At the very minimum, you should follow the 3-2-1 rule of secure backups: 

  • Have at least three versions of your data.
  • Store it on two different media.
  • Store one data backup offsite.

Also implement a cloud DLP solution that protects your data from unauthorized access and automatically disables access when suspicious activity is detected. 

To mitigate the damage of a small business data breach, get cyber insurance that protects against losses from ransomware and other cyberthreats.

How much does cloud computing cost?

The cost of cloud computing varies widely, depending mainly on the cloud service you need. Here’s a general idea of typical costs:

  • Cloud storage and file-sharing services like Dropbox start with free accounts, but paid plans with advanced features start at $20 per user per month. 
  • Cloud backup and recovery services like Carbonite can cost $50 per month.
  • Amazon Web Services offers a range of cloud services. The company offers some free tiers (storage and time limits apply), while others are available on a pay-as-you-go basis.

Cloud-based software pricing also depends on the industry. Other factors that affect pricing include the number of users, how you will launch and distribute the software across the company, and priority tech support options.

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Nadia Reckmann, Contributing Writer
During her years as a professional business writer, Nadia Reckmann has written hundreds of articles with a focus on SMB strategy, operations, technology, and tools that are essential for business success. In addition to that, she creates content that helps small businesses and entrepreneurs improve their marketing techniques, sales performance, and communication strategy. She also writes about CRM and other essential business software, team and project management, and productivity.
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