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From sharing content, running programs to streaming music, cloud computing is changing our habits. Thanks to the cloud, we no longer need to keep files or run software that clutter up our computers.
In the simplest terms, cloud computing means storing and accessing data and programs over the Internet instead of your computer's hard drive. The cloud is just a metaphor for the Internet. It goes back to the days of flowcharts and presentations that would represent the gigantic server-farm infrastructure of the Internet as nothing but a puffy, white cumulus cloud, accepting connections and doling out information as it floats.
What cloud computing is not about is your hard drive. When you store data on or run programs from the hard drive, that's called local storage and computing. Everything you need is physically close to you, which means accessing your data is fast and easy, for that one computer, or others on the local network. Working off your hard drive is how the computer industry functioned for decades; some would argue it's still superior to cloud computing, for reasons I'll explain shortly.
The cloud is also not about having a dedicated network attached storage (NAS) hardware or server in residence. Storing data on a home or office network does not count as utilizing the cloud. (However, some NAS will let you remotely access things over the Internet, and there's at least one brand from Western Digital named "My Cloud," just to keep things confusing.)
For it to be considered "cloud computing," you need to access your data or your programs over the Internet, or at the very least, have that data synced with other information over the Web. In a big business, you may know all there is to know about what's on the other side of the connection; as an individual user, you may never have any idea what kind of massive data processing is happening on the other end. The end result is the same: with an online connection, cloud computing can be done anywhere, anytime.
There is an entirely different "cloud" when it comes to business. Some businesses choose to implement Software-as-a-Service (SaaS), where the business subscribes to an application it accesses over the Internet. (Think Salesforce.com.) There's also Platform-as-a-Service (PaaS), where a business can create its own custom applications for use by all in the company. And don't forget the mighty Infrastructure-as-a-Service (IaaS), where players like Amazon, Microsoft, Google, and Rackspace provide a backbone that can be "rented out" by other companies. (For example, Netflix provides services to you because it's a customer of the cloud services at Amazon.)