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Cloud computing is a general term for anything that involves delivering hosted services over the Internet.

These services are broadly divided into three categories: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS). The name cloud computing was inspired by the cloud symbol that's often used to represent the Internet in flow charts and diagrams.

A cloud service has three distinct characteristics that differentiate it from traditional hosting. It is sold on demand, typically by the minute or the hour; it is elastic -- a user can have as much or as little of a service as they want at any given time; and the service is fully managed by the provider (the consumer needs nothing but a personal computer and Internet access). Significant innovations in virtualization and distributed computing, as well as improved access to high-speed Internet and a weak economy, have accelerated interest in cloud computing.

The key characteristic of cloud computing is that the computing is "in the cloud" i.e. the processing (and the related data) is not in a specified, known or static place(s). This is in contrast to a model in which the processing takes place in one or more specific servers that are known. All the other concepts mentioned are supplementary or complementary to this concept.

Generally, cloud computing customers do not own the physical infrastructure, instead avoiding capital expenditure by renting usage from a third-party provider. They consume resources as a service and pay only for resources that they use. Many cloud-computing offerings employ the utility computing model, which is analogous to how traditional utility services (such as electricity) are consumed, whereas others bill on a subscription basis. Sharing "perishable and intangible" computing power among multiple tenants can improve utilization rates, as servers are not unnecessarily left idle, which can reduce costs significantly while increasing the speed of application development. A side-effect of this approach is that overall computer usage rises dramatically, as customers do not have to engineer for peak load limits. In addition, "increased high-speed bandwidth" makes it possible to receive the same. The cloud is becoming increasingly associated with small and medium enterprises (SMEs) as in many cases they cannot justify or afford the large capital expenditure of traditional IT. SMEs also typically have less existing infrastructure, less bureaucracy, more flexibility, and smaller capital budgets for purchasing in-house technology. Similarly, SMEs in emerging markets are typically unburdened by established legacy infrastructures, thus reducing the complexity of deploying cloud solutions

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