This paper offers an overview of cloud computing technology and its economic implications.
The most serious problems cloud computing services face relate to privacy and security. Other issues include uncertainty about whether they could be regulated as telecommunications carriers or even public utilities.
- Cloud computing involves computer services provided over a network as opposed to services provided by a computer in the same location as the users. Different types of cloud computing services in software as a service (Saas), platforms as a service (Paas) or Infrastructure as a service (Iaas).
- Private clouds offer services only to some users, such as a firm’s employees. Public clouds offers services to computer users generally.
- The economic characteristics of cloud computing include:
- Reduction of costs, such as operating costs (because end users need not often upgrade hardware and software).
- Transform capital expenses (such as equipment) into operating expenses.
- Aggregating demand, that is, making it more likely that investments in hardware and software will be put to good use.
- Might enable cloud computer providers to see patterns in the use of data on a large scale that would otherwise have been missed.
- Disadvantages of cloud computing potentially include bandwidth shortages, and private and security problems, issues with reliability and quality, standardization, billing and metering issues, and questions about how to route traffic over networks.
- Key policy questions involving industry structure include concerns about competition among networks, technology providers, and data centers.
- Traditional “public utility” regulation has often been used to control prices of networks. This will be poorly suited to cloud computing, where service providers offer far more variety than public utilities.