To help reduce the costs and complexity associated with their technology infrastructure, a growing number of small businesses are exploring “cloud computing,” a technology approach that relies on accessing software and hardware over the Internet.

Cloud computing is also known as “on-demand computing” because, in many instances, companies can rent temporary access to the processing power and storage capacity of servers in large data centers and pay only for the computing resources they use.

For example, instead of installing a storage server within a small business network, a company may choose to upload files to’s® online storage services and pay only for the amount of data Amazon® stores on the company’s behalf.

Similarly, a company expecting a seasonal surge in network demand can arrange to rent additional data processing capacity with a cloud provider, and pay based on an hourly rate when the servers are being used. For example, this approach may be helpful for an online retailer preparing for the holiday season.

Most cloud applications include access through dedicated smartphone and tablet apps, as well as through mobile web. This gives business owners and team members access to the applications and their data from nearly anywhere, increasing the convenience of being able to work remotely.

Popular Examples

Many popular online productivity applications are examples of cloud computing. Companies that rely on Web-based email programs such as Yahoo!® Mail, Hotmail® or Gmail® are using cloud computing applications.

Similarly, Google®, Zoho®,® and other providers offer productivity suites that include word processing, spreadsheet, presentation, customer management, collaboration tools and other applications online through a blend of free and subscription-based services.  Many online retailers are using online shopping cart applications and paying a small fee for each transaction instead of purchasing and installing the software on their own servers.

Cloud-delivered applications are available for most small business needs, including financial and customer management, email, online data backup, and more.

Cost Benefits

Proponents of cloud computing say the primary advantage for small businesses is the tremendous savings opportunities. Productivity applications that would cost hundreds of dollars to purchase and install can be replaced with Web-based equivalents that may be free or cost substantially less. Google Apps, for instance, are free for consumer use and can be ordered in corporate versions that cost $50 per user annually.

In addition to reducing the up-front investment in servers and applications, cloud computing can help a company reduce the cost and complexity of maintaining and updating its servers and applications. Unlike installed applications that depend on significant updates on an annual basis, cloud-delivered applications are upgraded continually, and every time you log into the application over the web, you’re using the latest version. In addition to reducing direct upgrade costs, this can save your company the inconvenience of having to install new versions of your software, and dealing with potential frustration and technical hassles.

Web-delivered software typically is offered on a sliding scale depending on the number of users, so a small business that needs several people to share the application and its data can generally save money by switching to an application delivered as a cloud service.

Another potential cost advantage of cloud-delivered software is that the available features are generally less complicated then you would find with installed applications.

Because most people only use a fraction of the advanced features of most productivity applications, for example, developers of Web-delivered tools can concentrate on offering the most popular and common features for a reduced cost.

In addition to cost and time savings, cloud computing can provide an additional layer of protection for your company’s data because the service provider will back it up, often several times to data centers in different geographical locations. Providing this kind of redundant data storage could be cost-prohibitive for many small businesses, but becomes more affordable under cloud computing.

Understanding the Cloud

While switching to cloud-based applications offers a number of powerful advantages for small businesses, there are a number of other factors to consider. Concern about the security of data stored in the cloud, for instance, has been a major inhibiting factor for many companies.

Cloud service providers have responded with a number of security measures, including encrypting data before it is stored on their servers, as well as multiple backups of customer data.

Accessing the cloud routinely also depends on a reliable and robust internet connection. If you can’t get online, you can’t access your applications or data, so working with a fast and reliable internet provider can be critical to companies depending on cloud services.

Ask Questions

Another potential concern is the privacy of customer data, as well as any related regulatory requirements to secure that information. Companies in regulated industries, such as financial services or healthcare, will have specific compliance requirements that may preclude the use of cloud applications.

In addition to talking about security features, it is also important to ask potential cloud providers about where your data will be stored. A number of countries have specific data protection requirements, and with a growing number of small businesses providing products or services internationally, it’s important to understand where data is being stored and any potential regulatory implications.

Data backup and recovery is another important area to explore before committing to a cloud service provider. If a hacker were able to access your account, for example, how quickly could the provider restore it after the breach was discovered?

By asking the right questions and thinking about potential scenarios, most small business owners should be able to take advantage of the benefits of cloud computing, while understanding and balancing the potential security threats.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.