In general, 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 response times from centralized infrastructure at other sites.
The cloud is becoming increasingly associated with SMEs as in many cases they cannot justify or afford the large CapEx of traditional IT. They 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.

Cloud computing users avoid capital expenditure (CapEx) on hardware, software, and services when they pay a provider only for what they use. Consumption is usually billed on a utility (resources consumed, like electricity) or subscription (time-based, like a newspaper) basis with little or no upfront cost. Other benefits of this approach are low barriers to entry, shared infrastructure and costs, low management overhead, and immediate access to a broad range of applications. In general, users can terminate the contract at any time (thereby avoiding return on investment risk and uncertainty), and the services are often covered by service level agreements (SLAs) with financial penalties.
According to Nicholas Carr, the strategic importance of information technology is diminishing as it becomes standardized and less expensive. He argues that the cloud computing paradigm shift is similar to the displacement of electricity generators by electricity grids early in the 20th century.
Although companies might be able to save on upfront capital expenditures, they might not save much and might actually pay more for operating expenses. In situations where the capital expense would be relatively small, or where the organization has more flexibility in their capital budget than their operating budget, the cloud model might not make great fiscal sense. Other factors impacting the scale of any potential cost savings include the efficiency of a company's data centre as compared to the cloud vendor's, the company's existing operating costs, the level of adoption of cloud computing, and the type of functionality being hosted in the cloud.
Among the items that some cloud hosts charge for are instances (often with extra charges for high-memory or high-CPU instances); data transfer in and out; storage (measured by the GB-month); I/O requests; PUT requests and GET requests; IP addresses; and load balancing. In some cases, users can bid on instances, with pricing dependent on demand for available instances.

Cloud architecture, the systems architecture of the systems involved in the delivery of cloud computing, typically involves multiple cloud components communicating with each other over application programming interfaces, usually web services.This resembles the Unix philosophy of having multiple programs each doing one thing well and working together over universal interfaces. Complexity is controlled and the resulting systems are more manageable than their monolithic counterparts. The two most significant components of cloud computing architecture are known as the front end and the back end. The front end is the part seen by the client, i.e. the computer user. This includes the client’s network (or computer) and the applications used to access the cloud via a user interface such as a web browser. The back end of the cloud computing architecture is the ‘cloud’ itself, comprising various computers, servers and data storage devices.

• Agility improves with users' ability to rapidly and inexpensively re-provision technological infrastructure resources.
•  Cost is claimed to be greatly reduced and capital expenditure is converted to operational expenditure.[34] This ostensibly lowers barriers to entry, as infrastructure is typically provided by a third-party and does not need to be purchased for one-time or infrequent intensive computing tasks. Pricing on a utility computing basis is fine-grained with usage-based options and fewer IT skills are required for implementation (in-house).
•  Device and location independence enable users to access systems using a web browser regardless of their location or what device they are using (e.g., PC, mobile). As infrastructure is off-site (typically provided by a third-party) and accessed via the Internet, users can connect from anywhere.
• Multi-tenancy enables sharing of resources and costs across a large pool of users thus allowing for:

1. Centralization of infrastructure in locations with lower costs (such as real estate, electricity, etc.)
2. Peak-load capacity increases (users need not engineer for highest possible load-levels)
3. Utilization and efficiency improvements for systems that are often only 10–20% utilized.[27]

• Reliability is improved if multiple redundant sites are used, which makes well designed cloud computing suitable for continuity and disaster recovery. Nonetheless, many major cloud computing services have suffered outages, and IT and business managers can at times do little when they are affected.
•  Scalability via dynamic ("on-demand") provisioning of resources on a fine-grained, self-service basis near real-time, without users having to engineer for peak loads. Performance is monitored, and consistent and loosely coupled architectures are constructed using web services as the system interface. One of the most important new methods for overcoming performance bottlenecks for a large class of applications is data parallel programming on a distributed data grid
• Security could improve due to centralization of data, increased security-focused resources, etc., but concerns can persist about loss of control over certain sensitive data, and the lack of security for stored kernels.]Security is often as good as or better than under traditional systems, in part because providers are able to devote resources to solving security issues that many customers cannot afford.]Providers typically log accesses, but accessing the audit logs themselves can be difficult or impossible. Furthermore, the complexity of security is greatly increased when data is distributed over a wider area and / or number of devices.
• Maintenance cloud computing applications are easier to maintain, since they don't have to be installed on each user's computer. They are easier to support and to improve since the changes reach the clients instantly.
• Metering cloud computing resources usage should be measurable and should be metered per client and application on daily, weekly, monthly, and annual basis. This will enable clients on choosing the vendor cloud on cost and reliability (QoS).

A cloud client consists of computer hardware and/or computer software that relies on cloud computing for application delivery, or that is specifically designed for delivery of cloud services and that, in either case, is essentially useless without it. Examples include some computers, phones and other devices, operating systems and browsers.

Cloud application services or "Software as a Service (SaaS)" deliver software as a service over the Internet, eliminating the need to install and run the application on the customer's own computers and simplifying maintenance and support. People tend to use the terms ‘SaaS’ and ‘cloud’ interchangeably, when in fact they are 2 different things. Key characteristics include:

• Network-based access to, and management of, commercially available (i.e., not custom) software
• Activities that are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web
• Application delivery that typically is closer to a one-to-many model (single instance, multi-tenant architecture) than to a one-to-one model, including architecture, pricing, partnering, and management characteristics
• Centralized feature updating, which obviates the need for downloadable patches and upgrades.

Cloud platform services or "Platform as a Service (PaaS)" deliver a computing platform and/or solution stack as a service, often consuming cloud infrastructure and sustaining cloud applications. It facilitates deployment of applications without the cost and complexity of buying and managing the underlying hardware and software layers.

Cloud infrastructure services or "Infrastructure as a Service (IaaS)" delivers computer infrastructure, typically a virtualization environment as a service. Rather than purchasing servers, software, data centre space or network equipment, clients instead buy those resources as a fully outsourced service. The service is typically billed on a utility computing basis and amount of resources consumed (and therefore the cost) will typically reflect the level of activity. It is an evolution of virtual private server offerings.

The server’s layer consists of computer hardware and/or computer software products that are specifically designed for the delivery of cloud services, including multi-core processors, cloud-specific operating systems and combined offerings

Public cloud or external cloud describes cloud computing in the traditional mainstream sense, whereby resources are dynamically provisioned on a fine-grained, self-service basis over the Internet, via web/web services, from an off-site third-party provider who and bills on a fine-grained utility computing basis.

A community cloud may be established where several organizations have similar requirements and seek to share infrastructure so as to realize some of the benefits of cloud computing. With the costs spread over fewer users than a public cloud (but more than a single tenant) this option is more expensive but may offer a higher level of privacy, security and/or policy compliance. Examples of community cloud include Google's "Gov Cloud".

A hybrid cloud environment consisting of multiple internal and/or external providers "will be typical for most enterprises".By integrating multiple cloud services users may be able to ease the transition to public cloud services while avoiding issues such as PCI compliance.
Another perspective on deploying a web application in the cloud is using Hybrid Web Hosting, where the hosting infrastructure is a mix between Cloud Hosting for the web server, and Managed dedicated server for the database server.

The concept of a Private Computer Utility was first described by Douglas Parkhill in his 1966 book "The Challenge of the Computer Utility". The idea was based upon direct comparison with other industries (e.g. the electricity industry) and the extensive use of hybrid supply models to balance and mitigate risks.
Private cloud and internal cloud have been described as neologisms, however the concepts themselves pre-date the term cloud by 40 years. Even within modern utility industries, hybrid models still exist despite the formation of reasonably well functioning markets and the ability to combine multiple providers.
Some vendors have used the terms to describe offerings that emulate cloud computing on private networks. These (typically virtualisation automation) products offer the ability to deliver some benefits of cloud computing whilst mitigating some of the pitfalls. These offerings capitalise on data security, corporate governance, and reliability concerns during this time of transition from a product to a functioning service based industry supported by competitive marketplaces.
They have been criticized on the basis that users "still have to buy, build, and manage them" and as such do not benefit from lower up-front capital costs and less hands-on management, essentially "[lacking] the economic model that makes cloud computing such an intriguing concept".