What is cloud computing? Types, benefits and uses

Published Thursday 2 April 2026

Table of contents

• What is cloud computing?
• How cloud computing works
• Types of cloud deployment models
• Types of cloud services
• Benefits of cloud computing
• Examples of cloud computing
• Use Xero's cloud-based platform
• FAQs on cloud computing

Key takeaways

• Choose Software as a Service (SaaS) solutions like cloud accounting, email, and communication tools to access complete applications through your browser without installing or maintaining software yourself.
• Start with public cloud services to minimize costs since you pay only for what you use without investing in expensive hardware, maintenance, or IT infrastructure.
• Configure your cloud services properly to avoid security breaches, as over 60% of data incidents result from incorrect user setup rather than provider failures.
• Plan for scalability by selecting cloud solutions that can grow with your business, allowing you to add users and increase storage during busy periods while scaling down when needed.

What is cloud computing?

Cloud computing is the on-demand delivery of computing resources over the internet, part of a global market projected to exceed 600 billion US dollars in 2024, according to recent market research. Instead of storing data and software on a single computer, you access everything online from any device, anywhere, at any time. This shift changes how you work, bank, communicate, and run your business, with many small businesses perceiving the cloud as essential to success, according to Frost's State of the Cloud 2024 report.

How cloud computing works

Cloud computing delivers computing resources over the internet instead of from your local device. When you use a cloud service, your data and applications run on remote servers managed by a provider. You access them through a web browser or app.

Here's what happens behind the scenes:

• Remote servers store your data: Instead of saving files to your hard drive, they're stored in secure data centres
• The provider manages infrastructure: Hardware, software updates, and security are handled for you
• You access services on demand: Log in from any device with an internet connection to use your applications and files

For small businesses, this means less time managing technology and more time running your business.

Types of cloud deployment models

Cloud deployment models describe where your cloud infrastructure runs and who manages it. The right model depends on your business size, security needs, and budget.

Public cloud

Public cloud services run on shared infrastructure managed by a third-party provider. You access resources over the internet and pay only for what you use. This model suits most small businesses because it's affordable, scalable, and requires no hardware investment. Examples include Xero, Google Workspace, and Microsoft 365.

Private cloud

A private cloud dedicates infrastructure to a single organisation. It offers more control and customisation but costs more to set up and maintain. Larger enterprises with strict security or compliance requirements typically choose this option.

Hybrid cloud

A hybrid cloud combines public and private cloud resources. Businesses can keep sensitive data on private infrastructure while using the public cloud for everyday applications. This model offers flexibility as your needs evolve, and its adoption is growing, with Frost research suggesting the use of hybrid cloud will triple among small businesses by 2026.

Types of cloud services

Cloud services fall into three main categories based on what the provider manages versus what you control. Understanding these models helps you choose the right solutions for your business.

Software as a Service (SaaS)

SaaS delivers complete applications over the internet. You access the software through a browser or app without installing anything. The provider handles all maintenance, updates, and security. This is the most common model for small businesses, and its wide use is reflected in Thales security research showing attackers have prioritised SaaS applications as a top target. Examples include Xero for accounting, Slack for communication, and Shopify for e-commerce.

Infrastructure as a Service (IaaS)

IaaS provides virtual computing resources like servers and storage. You rent infrastructure instead of buying hardware, but you manage the operating systems and applications yourself. This model suits businesses with technical teams that need custom setups. Examples include Amazon Web Services and Microsoft Azure.

Platform as a Service (PaaS)

PaaS provides a platform for building and deploying applications. Developers use these services to create custom software without managing underlying infrastructure. Most small businesses won't need PaaS unless they're building their own applications.

Benefits of cloud computing

Moving to the cloud offers small businesses practical advantages that save time and money. Here's how cloud computing helps your business operate more efficiently.

Cost savings

Cloud computing reduces upfront costs and ongoing expenses, with US government studies finding that cloud services provide more cost-effective options for managing IT. You pay only for what you use instead of investing in expensive hardware and software licences.

Here's how cloud solutions save money:

• No hardware purchases: Skip the cost of servers, backup systems, and IT infrastructure
• No maintenance fees: The provider handles updates, patches, and system maintenance
• Subscription pricing: Pay monthly based on usage rather than large upfront costs
• Automatic upgrades: Get new features without paying for version upgrades

Accessibility and flexibility

Access your business data from anywhere with an internet connection. Work from home, check reports on your phone, or collaborate with your accountant in real time. You control who can view and edit your information, and you can revoke access instantly when needed.

Security and reliability

Cloud providers invest heavily in protecting your data. This is crucial, as research shows a leading cause of security incidents is not the provider's fault but rather improper cloud service configuration by the user, which accounts for over 60% of data breaches. Professional security teams monitor systems around the clock, and automatic backups mean you won't lose files if a device breaks or gets stolen. Your data is often safer in the cloud than on a single computer, which can be corrupted, lost, or stolen.

Cloud services also offer high reliability. Downtime is rare, and when it happens, your data remains secure until the connection returns.

Scalability

Cloud services grow with your business. Add users, increase storage, or access new features without buying new hardware. You can scale up during busy periods and scale down when things slow, paying only for what you need.

Examples of cloud computing

You probably use cloud computing every day. Here's how cloud technology compares to traditional approaches in familiar situations:

• Banking: Traditional banking required visiting a branch to access your financial data. Internet banking stores your information in the cloud, so you can check balances and make transfers anytime, anywhere.
• Email: Traditional mail was only available at the post office. Web-based email lets you send and receive messages from any device with an internet connection.
• File storage: Traditional filing kept documents locked in your office. Cloud storage makes your files accessible whenever you're online.
• Shopping: Traditional retail limited customers to store hours and locations. Online shopping lets customers browse and buy anytime, from anywhere.
• Accounting software: Traditional desktop software stored data on one computer, limiting access. Cloud accounting software like Xero keeps your data online, so you and your team can work from anywhere.

Now that you understand cloud computing benefits, consider how a cloud-based accounting platform can help your business.

Use Xero's cloud-based platform

Xero puts cloud computing benefits to work for your small business. Access your accounts from any device, collaborate with your accountant in real time, and let automatic updates handle the technical details.

With Xero, you get:

• Anywhere access: Check cash flow, send invoices, and reconcile transactions from your phone, tablet, or laptop
• Real-time collaboration: Share data instantly with your accountant or bookkeeper.
• Automatic backups: Your financial data stays secure without manual effort
• Continuous updates: New features roll out automatically with no extra cost

Ready to experience cloud accounting? Get one month free and see how Xero simplifies your business finances.

FAQs on cloud computing

Still have questions about cloud computing? Here are answers to common questions small business owners ask.

What are examples of cloud computing?

Common examples include internet banking, web-based email like Gmail, file storage services like Dropbox, and cloud accounting software like Xero. Any service you access online instead of installing on your computer uses cloud computing.

How is cloud computing different from the internet?

The internet is the connection; the cloud is where your data lives. You use the internet to access cloud services, but cloud computing refers to the remote servers, storage, and software you connect to online.

How is cloud computing different from traditional software?

Traditional software installs on one computer and stores data locally. Cloud software runs online, so you can access it from any device. Updates happen automatically, and your data syncs across all your devices.

Do I need technical skills to use cloud computing?

No. Cloud services are designed for everyday users, not IT experts. You simply log in through a web browser or app and start working. The provider handles all technical tasks like updates, security patches, and backups behind the scenes.

What happens to my data if the internet goes down?

Your data stays safe in the cloud even when you're offline. Internet connections are reliable and typically stable. Once your connection returns, you can access everything exactly as you left it. Some cloud apps also offer offline modes that sync automatically when you're back online.

How much does cloud computing cost for small businesses?

Most cloud services use subscription pricing, so you pay a predictable monthly fee based on your needs. You pay only for what you need, avoiding large upfront hardware costs.

Please note the following important information.