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The history of cloud computing explained

Cloud computing has evolved significantly from its origins to become an essential service that many modern organizations rely on today.

Cloud computing has become indispensable for most households and businesses, and it was instrumental in minimizing the social disruption and economic destruction of lockdowns and restrictions due to the COVID-19 pandemic.

Cloud computing breaks down into information, application and computing utilities, and takes form in IaaS, PaaS and SaaS.

The pandemic accelerated business adoption of cloud services as organizations turned to online services and infrastructure to accommodate remote employees and customer demand for online meetings, events and commerce. Gartner estimated that spending on all cloud services will increase 41% between 2020 and 2022, and almost 70% of organizations are increasing their cloud spending due to the disruption caused by COVID-19.

What was there before cloud computing?

As businesses migrate workloads online and build new cloud-native applications, the cloud displaces enterprise data centers. However, businesses didn't always own and operate private data centers. Until the introduction of minicomputers -- such as the Digital Equipment PDP and VAX series that proliferated across business and academia in the 1970s -- only the largest enterprises and government agencies could afford to buy and operate a mainframe. Time-sharing solved this problem, according to inventor John McCarthy, via an operating system that allowed many users to have simultaneous access to a large computer through remote terminals.

The data processing needs of smaller companies fueled the rise of time-sharing as a business, with hundreds of companies providing services by the mid-1960s. While most of these companies are lost to history, some like IBM Global Services, DXC Technology (successor of Electronic Data Systems and Computer Sciences Corporation) and NTT Data (which acquired Perot System) survive as part of full-service IT services providers.

The rise of PCs and Unix workstations along with Windows and Unix servers destroyed what was left of the time-sharing market and paved the way for cloud computing. Though virtualization had long been part of IBM's mainframe operating system, the final piece of technology was the reinvention of virtual machines for x86 systems by the founders of VMware in 1999. VM technology provided the foundation for cloud compute instances and soon led to the virtualization of other infrastructure resources that constituted the early cloud services, including the following:

  • storage (block volumes, network file shares and object buckets);
  • networks (VPNs and virtual LANs);
  • application containers (Docker runtime); and
  • network control plane and service (software-defined network and network functions virtualization).

Who invented cloud computing?

Cloud services rely on several core components, which makes ascribing authorship to a single individual or entity impossible. See the various technologies and their originators in the table below.

Cloud component Inventor
x86 servers and operating systems (Windows, Linux) Intel, Microsoft and the Linux project
x86 virtualization VMware, and later Cambridge University with the Xen hypervisor
Internet and widespread high-speed internet access

Early packet-switched networking (Arpanet): Bob Kahn, Vint Cerf, et al.

TCP/IP ecosystem (routing protocols, DNS, etc.): various

Telcos and broadband providers: various

World Wide Web: Vint Cerf and Tim Berners-Lee
Application service providers (ASPs) and multi-tenant SaaS providers

ASPs: Jostein Eikeland, founder of TeleComputing

SaaS: Marc Benioff, Larry Ellison and Evan Goldberg of Oracle
IaaS Amazon Web Services

Tracing the etymology of the term cloud is difficult since the cloud metaphor was widely used by early internet designers to denote the wide-area routing and switching infrastructure between network nodes. Perhaps the first use of cloud to describe a collection of remotely executing applications and services came from Andy Hertzfeld, one of the creators of the original Apple Mac computer, who later co-founded General Magic in 1993. In a 1994 Wired article, Hertzfeld described the startup's new Telescript system:

The beauty of Telescript is that now, instead of just having a device to program, we now have the entire Cloud out there, where a single program can go and travel to many different sources of information and create sort of a virtual service.

The term came into widespread use in 2006 when Amazon launched AWS with the Elastic Compute Cloud (EC2) service.

1990s: Precursors to cloud computing

The precursors to cloud computing include time-sharing, ASPs and consumer information services, such as CompuServe and AOL. They show that the impetus for remote services, whether delivered over the internet or a dial-up line, was the need for applications and data that couldn't easily -- if at all -- be provided locally. Although virtual machines were long part of mainframe systems, early time-sharing uses centered on application processing.

By the late 1990s, ASPs were common, and the Oracle brain trust extended the idea to multi-tenant SaaS applications, leading Benioff to leave and found Salesforce while Goldberg stayed on at Oracle and started NetSuite. Complicated enterprise software -- such as enterprise resource planning (ERP), customer relationship management (CRM) and financial systems -- are ideal candidates for SaaS due to the cost of the required infrastructure and expertise needed to operate them.

It wasn't until enterprises installed larger internet circuits and executives warmed up to the concept of remotely executing applications that companies such as Salesforce took off, with revenue exploding in the 2000s. The popularity of consumer online applications and social networks -- such as Evernote, Facebook, Webex and Dropbox -- paved the way for business SaaS by demonstrating the convenience, simplicity and reliability of online applications to enterprise executives. 

cloud computing categories
SaaS, PaaS and IaaS are the three main cloud service categories.

2000s: The modern cloud

Cloud services as broadly understood today -- virtual infrastructure resources, development platforms and complete applications -- emerged in the 2000s. While Benioff was evangelizing the benefits of SaaS business applications, internet businesses such as Amazon, Google and Microsoft were building vast data centers to accommodate the rapid growth of online commerce and applications.

AWS birthed the IaaS industry as an outgrowth of previous efforts to create its Amazon marketplace for third-party retailers. After building the necessary infrastructure and APIs, some at the company realized that they had unused capacity -- particularly outside peak shopping periods -- that could be rented on demand. AWS was born when S3 and EC2 were released in 2006. Microsoft and Google soon followed with cloud services in 2008, with Azure and Google App Engine, respectively. The same year, NASA released the Nebula platform that evolved into OpenStack.

Google simultaneously pioneered SaaS productivity applications by releasing the Google Apps suite in 2007. In 2009, Apple introduced limited online document sharing and editing in iWork, while Microsoft joined the SaaS market by launching Office 365 in 2011.

Consumers were first to embrace the cloud via services such as Dropbox, Google Drive, iCloud and other file storage products that replaced email and USB sticks for file sharing and local hard drives for backup. These same use cases attracted businesses to both packaged SaaS backup products and low-cost IaaS storage services such as S3 and Azure Storage for off-site archival. As virtualization overtook enterprise data centers, organizations augmented these storage services with compute instances to create remote disaster recovery environments at a fraction of the cost of dedicated secondary facilities.

2010s: Cloud computing evolves

The nexus of cost-conscious businesses recovering from the 2008 financial crisis and rapidly maturing cloud technology led many organizations to explore cloud services as an alternative to capital-intensive private infrastructure. The pay-as-you-go convenience of cloud services fueled organic bottom-up adoption within large enterprises. It enabled teams to begin creating cloud environments from department budgets without needing to go through long capital approval processes for new equipment.

The decade saw an explosion of new business and consumer cloud services along with construction of the hyperscale data centers required to operate them, with Apple iCloud, IBM Cloud and Oracle Cloud all launching. The decade's latter half saw the rise of container infrastructure -- namely, Docker container runtime and image format, and the Kubernetes cluster manager -- as a replacement for VMs. Every cloud service soon introduced container management services and hybrid products, such as Docker Enterprise, Red Hat OpenShift and VMware Tanzu, offering workload portability between private and public cloud environments. 

cloud storage comparison
Companies can choose among public, private or hybrid for cloud storage options, depending on their needs.

What is the future of cloud computing?

While 2020 was difficult for many small businesses, things couldn't be better for cloud operators.  Enterprise spending on IaaS hit $37 billion in Q4 and $130 billion for all of 2020, 35% higher than a year earlier, according to Synergy Research. In contrast, enterprise spending on data center hardware and software fell 6% to less than $90 billion. Gartner estimated similarly robust growth in cloud enterprise spending, which rose 43% in 2020 and another 29% in 2021 to $81 billion. The research firm predicted that by 2024, 45% of IT spending will shift from internal infrastructure to cloud services.

Most of this increase was unplanned or pulled forward as organizations turned to cloud services to mitigate disruptions from forced remote work and a concomitant shift of business operations and consumer activity online. According to a Flexera report, 90% of surveyed IT professionals said that post-pandemic cloud usage was higher than planned; 29% reported an increase by a significant margin, while only one-tenth reported cuts in cloud spending. Many cited an urgent need for capacity and the convenience of deploying cloud services in light of pandemic restrictions. The mass migration of business meetings and schooling online was also a boon for SaaS vendors, particularly those with video conferencing services.

Aside from the vast expansion of cloud usage, the next few years will see organizations take a nuanced, strategic approach to cloud services as they select the best balance of public and private cloud infrastructure, find optimal cloud products and providers for their needs, and hedge lock-in and loss-of-service risk via a heterogeneous cloud environment. Other considerations for the cloud-centric enterprise include the following:

  • choosing between SaaS and installed applications, and packaged software versus custom applications built from a mix of IaaS, PaaS and on-premises resources;
  • how to bolster the security of distributed cloud environments, including the role of layered defenses and zero-trust architectures; and
  • the need for sophisticated cost management and optimization software to tame complex cloud pricing models and service plans, reduce spending on unused capacity, and determine the best mix of cloud and private services.

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