How does the cloud work?

Here, we look at the concept of cloud computing, explore the benefits it offers and highlight some of the key commercial and legal implications.

More and more business are adopting cloud computing to reduce costs and simplify processes.

Many online consumer services, such as Facebook and Instagram, meanwhile store their users’ data on the cloud. But who owns the data - and who governs the cloud?

What is cloud computing?

Cloud computing is internet-based computing. It provides shared processing resources and data to computers and other internet-enabled devices, such as tablets and mobile phones, on demand.

Cloud computing lets us store and access data and applications over the internet instead of storing them on the device we’re using at any given time. So, with an internet connection, we can work (or play) anywhere, anytime and on any device.

The term “cloud” comes from the graphical icon that represents the internet on computer network diagrams.

What’s driving the cloud’s growth?

In 2012, cloud computing generated nearly $100 billion in revenue, This figure is forecast to reach $127 billion in 2017. Three main forces are driving this growth. They are:

  • Costs. The costs of computer processing power, storage and fixed line and wireless network bandwidth are falling rapidly. This means large scale data centres are getting more and more economically viable;
  • Hybrid computing hardware-software models. As these become more sophisticated, storing and processing information across multiple locations gets easier; and
  • Open communication standards. These enable interoperability between different types of computing devices – and they’re now more widely adopted than ever.

The benefits of cloud computing

The central idea behind cloud computing is that data is stored on thousands of computers connected to the internet by ultra-fast fibre networks. These computers are housed in massive server farms.

So instead of keeping data on a single computer at the office or at home, you can access the files from any internet-enabled device, even though they may reside anywhere in the world. This also means you don’t need to keep adding memory, in the form of USB sticks, SD cards and hard drive upgrades, to store your data or computer applications.

Cloud computing is great for working collaboratively or for allowing groups of people to access the same files. And, being remote, the cloud servers also provide secure back-ups of important information. If a particular computer is lost, stolen or damaged, data in the cloud is still safe.

Cloud computing models also allow us to use massive computing resources not otherwise available on our local devices. High-resolution video editing, real-time translation and virtual reality simulations, for example, are all possible on low spec computers now, thanks to cloud computing.

Cloud computing allows companies to cut IT infrastructure costs significantly. Instead of investing capital in expensive hardware and networking, firms can use a pay-as-you-go model. In-built in this model is the flexibility to scale capacity up or down as demand fluctuates.

Types of cloud computing services

Cloud computing services can be grouped into three different types:

  • Software as a Service (SaaS), where applications, such as, are accessed over the internet;
  • Platform as a Service (PaaS), which allows businesses to create custom applications for its employees. Microsoft Azure is a cloud computing platform; and
  • Infrastructure as a Service (IaaS), where one company provides the infrastructure, including data-centres, applications and network connectivity, for another. An example of this is Amazon Web Services, which underpins Netflix.

Examples of cloud computing services

Today, almost everyone who uses the internet uses a cloud computing service, even if they don’t know it. Common examples include:

  • File storage services such as Dropbox and Microsoft OneDrive;
  • Information sharing services such as Google Calendar and Apple’s iCloud;
  • Media streaming services such as Spotify, Netflix and BBC iPlayer; and
  • Internet of Things services which provide access to devices such as security cameras and thermostats.

The line between local computing (where the applications reside on the device) and cloud computing can get blurry. The local version of Microsoft Office, for example, offers seamless interaction with cloud computing by letting you save the documents you create to Microsoft OneDrive.

Drawbacks of cloud computing

Alongside its many benefits, cloud computing also has some disadvantages and grey areas. These include:

  • Reliability: all the major corporate and consumer services have suffered outages in recent years, denying users access;
  • Security: cloud services are a treasure trove of user data, so routinely come under attack from increasingly sophisticated hackers;
  • Data ownership: many contractual agreements between cloud service providers and their users are unclear about which party owns the data stored online, particularly the data relating to the users themselves. Facebook and Instagram, for example, frequently change their terms of service regarding what they can do with users’ photos;
  • Stored vs created data: some service agreements draw a distinction between content that is uploaded to the service and content created in the service; and
  • Jurisdiction: although the essence of the cloud model is virtualisation, data centres do have a physical location. This can create issues around legal jurisdiction, such as where the data is housed, which country’s privacy legislation applies and which law enforcement agency oversees regulatory control.


Cloud computing reduces costs and simplifies IT for everyone, from the consumer to multinational corporations. It’s growing fast and becoming ever more ubiquitous. That said, it’s not without its drawbacks and grey areas. For in-house lawyers, it pays to know as much as possible about cloud computing, both generally and how it specifically affects their organisations.