IaaS Business Model [ Explained Simply ]

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On February 2017; Netflix, Spotify, Pinterest, Reddit, Pinterest, Dropbox, Tinder and thousands of other websites were down for 4 hours, including the site (downdetector.com) that reports outages. 

Some thought the whole internet was down, but it wasn’t. 

An Amazon Web Services outage had made thousands of websites inaccessible, bringing to light how much of the internet is powered by Amazon.

In 2017, AWS accounted for 49.4% of the total IaaS market share.

The next three top IaaS service providers — Microsoft, Alibaba & Google made up for 21.3 % of the market, less than half of the market share of AWS.

One of the reasons why Amazon dominates the IaaS space is because it was the first to go-to-market, pioneering the infrastructure revolution when it launched AWS in 2006.

Another reason for AWS’ domination is that competitors were late to the party. 

In a Sep 2018 interview, Jeff Bezos, Amazon CEO, said that AWS faced no like-minded competition for seven years, defining the phase as “The greatest piece of business luck in the history of business so far as I know”.

Much of the internet proliferation in the last 15 odd years is attributed to IaaS, and rightly so.

But what exactly does Infrastructure as a service mean and why does it matter? 

Let’s find out.

The IaaS Business Model

One could simply define IaaS as a form of cloud computing that provides virtualized computing resources over the internet. 

But that’s a very textbookish definition, lacking any insight.

What we’re going to try to do is explain IaaS simply, yet in more detail using our website as an example.

In Sep 2019, we decided to launch this blog. Thanks to DigitalOcean (our IaaS Provider), it took us around four hours to get this website up and running.

First, we bought our domain from BigRock and pointed the Domain Name System to the droplet we created on DigitalOcean.

You can think of the Domain Name System as the phonebook of the internet. 

While we access information online through domain names, browsers interact through Internet Protocol (IP) addresses. 

The job of the DNS is to translate domain names to IP addresses so that the browser can load Internet resources. 

Once the droplet (virtual machines available in multiple configurations of CPU, Memory & SSD) was created, we used DigitalOcean’s one-click system to install WordPress and our blog theme.

Digital Ocean Droplet Pricing
DigitalOcean Droplet Plan

We didn’t need to buy servers. We didn’t need to set them up. We didn’t need to worry about future server maintenance. 

If we didn’t have any other option than setting up the infrastructure by ourselves, it would have cost us precious time and money. 

On-demand resources & flexibility are other advantages of IaaS. 

In the beginning, we bought the $5/month droplet plan.

But as the traffic on our website grew, we upgraded to the $10/month droplet plan. 

Going ahead, we’ll keep upgrading the infrastructure as and when required without having to worry about the challenges associated with the conventional method of setting up our own infrastructure.

If we wanted, we could have also chosen to only add additional RAM, keeping other resources like data transfer rates & SSD disk as they were.

But it’s not like IaaS does not have any disadvantages at all. 

If you use an IaaS provider like DigitalOcean, you outsource security as well.

Downtime issues, like the AWS one we mentioned in the beginning, occur at times. 

Using IaaS is like trading independence for convenience. 

To sum it all up, Infrastructure as a service (IaaS) is an instant computing infrastructure service, provisioned and managed over the internet, which provides several advantages like reduced upfront and ongoing cost, on-demand scalability and flexibility but it also comes with disadvantages like reduced independence & occasional downtime issues.

Usually, IaaS services provide either of the two buying options: Pay-As-You-Go & Subscription. 

In the Pay-As-You-Go model, resource consumption is based on per hour/day usage. 

On the other hand, in the subscription model, users reserve a portion of resources at a fixed price, regardless of what they end up consuming.

In 2020, IaaS businesses are expected to make $50 billion, accounting for 18.76% of the total cloud computing market which also includes Software as a service (SaaS) & Platform as a service (PaaS).

Here’s a diagram that highlights the differences between traditional on-premise IT & cloud computing services like IaaS, PaaS & SaaS.

OnPremiseIT-SaaS-PaaS-IaaS: How are they Different
OnPremiseIT-SaaS-PaaS-IaaS: How are they Different

IaaS Market Future Statistics & Trends

— Valued at $38.94 billion in 2019, the IaaS market is projected to be worth $201.83 billion by 2027, meaning a 23.2% compound annual growth rate during 2020-2027.

— Among regions like North America, Europe, Asia-Pacific, and LAMEA; the Asia-Pacific region is expected to exhibit the highest compound annual growth rate of 26.5% during 2020-2027.

— With more and more Small & Medium Enterprises(SME’s) moving to the cloud, SME’s are expected to contribute more to the growth of IaaS than large enterprises during 2020-2027.

— Among IaaS deployment models like the hybrid cloud ( A mix of on-premise private cloud and third-party public cloud services ), private cloud & public cloud — the hybrid model is expected to grow the most during 2020-2027 since it offers the best of both private & public cloud — giving users more flexibility, more confidentiality & more security.

— With demand for high-performance computing and big data analysis on the rise, the compute segment is expected to grow the more than other IaaS segments like storage & networking during 2020-2027. 

Thank you for taking the time to read the entire article.

If you liked it, you might also like our article explaining the SaaS Business Model.

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IaaS Business Model [ Explained Simply ]
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IaaS Business Model [ Explained Simply ]
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Infrastructure as a service (IaaS) is an instant computing infrastructure service, provisioned and managed over the internet, which provides several advantages like reduced upfront and ongoing cost, on-demand scalability and flexibility but it also comes with disadvantages like reduced independence & occasional downtime issues.
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