The Business Advantages and Legal Risks of Cloud Computing

Robins Kaplan – Predictions suggest that the global market for cloud computing services should reach $118 billion by the end 2015 and climb as high as $200 billion by 2018.1

Although the cloud computing industry continues to be in its infancy, organizations of all sizes have embraced cloud computing because of its promise as an efficient, cost effective means of managing data and technology in a rapidly evolving virtual landscape. Understanding the full advantages of the cloud—and appreciating its very real risks—requires a deeper dive into the specific technologies and terminology under consideration when conversations turn to the cloud.

Cloud Computing 101

Cloud computing providers offer services that can help companies manage data, applications and technology. Cloud computing centralizes and shares computing resources across a network. The cloud lets businesses of all sizes move their file storage, applications services, and networking infrastructure to either internally or externally managed central facilities. Third parties typically own and manage cloud resources, and then distribute those resources to organizations over either a public or private internet link—or a hybridized combination of the two. Consequently, cloud services are often classified as “public,” “private,” or “hybrid.”

Public cloud services use an open network—such as the internet—on architecture usually shared by individuals and organizations. While data may not be available to all, the service is not typically stored or delivered on infrastructure dedicated to a single customer. Conversely, private networks operate on dedicated hardware that contains an organization’s data, managed either internally or externally. Virtual walls and virtual private networks help to segregate data and connections to these systems from the rest of the internet.
Hybrid services combine elements of both public and private cloud services to provide their specific solution.

Services in the Cloud

Three different types of services comprise the cloud computing services generally known as the cloud “stack.” Understanding these various services may provide important context when evaluating the legal and business considerations implicated by the use of the cloud. The cloud stack consists of:

1. Infrastructure as a Service (IaaS)

IaaS refers to the most basic infrastructure and architecture cloud services, including storage, servers, and networking devices typically found in a data center. Customers use these services as a means to scale and distribute network infrastructure throughout the enterprise, while otherwise maintaining higher level software and management responsibilities. Amazon AWS, which offers businesses scalable, distributed, and offsite data storage, is an example of an IaaS provider.

2. Platform as a Service (PaaS)

PaaS offers a development environment for companies wishing to develop distributed business applications. Cloud providers manage the architectural backend and middleware components of an application, and provide enterprise tools that can be used to rapidly develop applications. Microsoft Azure and Google App Engine provide this type of service. In a PaaS environment, organizations develop frontend applications, and the provider handles the complexity of hardware purchasing and scaling and backend software design.

3. Software as a Service (SaaS)

SaaS provides more comprehensive, typically “out of the box,” software and hardware platforms to businesses. Instead of merely providing infrastructure or a development environment, a SaaS provider offers complete enterprise software solutions. Although businesses using SaaS services may still need to customize to some degree, the cloud provider handles the bulk of the software development, management, and deployment. Oracle’s Cloud is a SaaS provider that offers sophisticated business applications from the cloud, so companies using their services no longer need to develop and deploy them internally.

Cloud Computing Advantages

The growing popularity of cloud computing arises directly from the business advantages it offers to enterprises struggling to balance the complexity and costs associated with advances in technology with the desire to stay laser-focused on their businesses. These include:

Allocation of information technology resources – because the cloud lets organizations share an external infrastructure, they avoid having to purchase and maintain the technology and networks internally. Businesses maximize shared resources, and hope to have to pay for only what’s used, especially when demand fluctuates.
Outsourcing of highly specialized system management – as technology changes, outsourcing helps businesses meet the requirements to improve and specialize their systems through outsourced investment.
Availability of services – cloud providers create extensive networks and data centers. Businesses may no longer need to rely upon costly internal hardware and geographic redundancy in order to ensure system availability. Cloud computing allows companies to replicate corporate data across multiple networks, without having to take on that challenge internally.
Cloud Computing Risks

Despite its advantages, the cloud is not without with significant risks. Use of the cloud can mean that a company’s most secret materials are being stored and managed by third-party cloud providers. When materials stored in the cloud includes the personal and business information of a company’s clients and employees— including information that creates proprietary advantage—those risks require the active management by in-house counsel charged with protecting sensitive data. Fulfilling that obligation demands consideration of strategies for protecting intellectual property in the light of current patent litigation reforms as well as outsourcing best practices.


Cloud computing promises organizations multiple advantages for addressing their growing data and technology management needs. But organizations will have to remain vigilant in how they leverage the value of cloud computing with the need to take reasonable steps to protect the secrecy of their most valuable data.

1 Sharon Gaudin, Hybrid cloud adoption set for a big boost in 2015, Computer World, Dec, 18, 2004, available at