Cloud Computing Models Explained: IaaS, PaaS, and SaaS With Real Examples

Cloud computing isn’t one thing — it’s three service models, each handling a different layer of the technology stack. Understanding which model fits which use case is the difference between a cloud strategy that works and one that creates new problems while solving old ones.

Here’s how IaaS, PaaS, and SaaS work, with concrete examples of each.

TL;DR: Worldwide public cloud spending is forecast at $723.4 billion in 2025, up 21.5% from 2024 (Gartner, 2024). The three service models — IaaS (you manage applications and data), PaaS (you manage applications only), and SaaS (the vendor manages everything) — form a spectrum from maximum control to maximum convenience. Most businesses use all three: IaaS for custom infrastructure, PaaS for development, and SaaS for business applications.

What Are the Three Cloud Service Models?

Public cloud spending will reach $723.4 billion in 2025 (Gartner, 2024). That spending splits across three models, each defined by which layers the provider manages and which you manage.

IaaS (Infrastructure as a Service). The provider gives you virtual machines, storage, and networking. You manage everything above that: operating systems, middleware, applications, and data. Think of it as renting the building — you bring the furniture.

Examples: AWS EC2, Microsoft Azure VMs, Google Compute Engine. Use cases: custom application hosting, development/test environments, high-performance computing, and scenarios where you need full control over the software stack.

PaaS (Platform as a Service). The provider manages infrastructure plus the operating system and runtime. You manage your applications and data. Think of it as renting a furnished office — you bring your work.

Examples: SAP BTP (Cloud Foundry and Kyma), Heroku, Google App Engine, Azure App Service. Use cases: application development, API hosting, and scenarios where you want to deploy code without managing servers.

SaaS (Software as a Service). The provider manages everything — infrastructure, platform, and application. You configure and use it. Think of it as a co-working space — you just show up and work.

Examples: SAP S/4HANA Cloud (public edition), Salesforce, Microsoft 365, SAP Concur. Use cases: business applications where you want functionality without building or managing software.

How Do Real Businesses Use Each Model?

SAP’s cloud backlog reached EUR 77 billion, up 30% year-over-year (SAP News, 2025). That backlog represents organisations choosing across all three cloud models.

IaaS in practice: A manufacturing company runs its legacy applications on AWS EC2 instances. They migrated from on-premise servers but kept the same software — just moved it to cloud infrastructure. They manage the operating system, patches, and application configuration. The benefit: no more hardware procurement, and they can scale capacity during peak production periods.

PaaS in practice: An SAP customer builds custom extensions for Sales Cloud V2 using SAP CAP on BTP’s Cloud Foundry. They write business logic in Node.js, deploy it to BTP, and the platform handles scaling, availability, and infrastructure. They never touch a server — they just push code.

SaaS in practice: A mid-size company uses SAP Concur for expense management. Employees submit expenses through the mobile app, managers approve them, and finance processes reimbursements. The company configured Concur’s expense policies and approval workflows but didn’t build any custom software.

Most organisations use all three models simultaneously. The choice depends on the use case, not a blanket “we’re cloud-first” policy.

Who Are the Major Cloud Providers?

The top three public cloud providers — AWS, Azure, and Google Cloud — hold a combined market share exceeding 70% (Synergy Research, 2025). AWS leads at approximately 31%, Azure at 25%, Google Cloud at 11%.

Amazon Web Services (AWS). The largest provider with the broadest service catalogue. Strong in: compute, storage, machine learning, and serverless computing. SAP runs on AWS for many RISE with SAP customers.

Microsoft Azure. Second largest, tightly integrated with Microsoft’s enterprise ecosystem (Office 365, Active Directory, Teams). Strong in: hybrid cloud (Azure Arc), enterprise identity, and Windows-based workloads.

Google Cloud Platform (GCP). Third largest, known for data analytics, machine learning (Vertex AI), and Kubernetes (GKE). Strong in: big data, analytics, and open-source technologies.

SAP BTP is a specialised PaaS built for SAP workloads. It runs on top of AWS, Azure, or GCP — you choose the hyperscaler when creating subaccounts. BTP adds SAP-specific services (Integration Suite, HANA Cloud, CAP runtime) that generic cloud providers don’t offer.

How Do You Choose the Right Model?

Forty-three per cent of organisations say generative AI influenced their ERP decisions in 2025 (ERP Today, 2025). AI capabilities are increasingly available as SaaS, which influences the model choice.

Choose based on what your team should focus on:

• Use SaaS when the application exists and does what you need. Don’t build what you can buy. CRM, ERP, expense management, email — these are solved problems.
• Use PaaS when you need custom applications but don’t want to manage infrastructure. API services, custom business logic, integrations, and microservices.
• Use IaaS when you need full control over the software stack. Legacy application hosting, specialised computing (GPU workloads), and scenarios with strict compliance requirements that mandate OS-level control.

A practical rule: start with SaaS. Drop to PaaS when SaaS can’t be configured to meet your needs. Drop to IaaS only when PaaS constraints block your architecture.

FAQ

Is cloud computing always cheaper than on-premise?

Not always. Cloud is cheaper for variable workloads, small to mid-size deployments, and organisations without dedicated IT infrastructure teams. For large, steady-state workloads, on-premise can be cheaper over 5+ years. The real comparison is TCO (total cost of ownership) over the expected lifetime, not monthly cost vs. upfront cost.

Is cloud computing secure enough for regulated industries?

Yes, when configured correctly. Major cloud providers (AWS, Azure, GCP) hold certifications for ISO 27001, SOC 2, HIPAA, and PCI DSS. They invest billions in security infrastructure. The risk typically comes from misconfiguration — not from the cloud itself. Most security breaches in cloud environments are caused by customer configuration errors, not provider vulnerabilities.

What is multi-cloud and when does it make sense?

Multi-cloud means using more than one cloud provider (e.g., AWS for compute, Azure for identity, GCP for analytics). It makes sense when different providers offer best-in-class capabilities for different workloads. It increases complexity, so don’t adopt multi-cloud unless you have a clear reason for each provider.

Can I move between cloud providers?

In theory, yes. In practice, it depends on the model. IaaS workloads are the most portable (VMs and containers move relatively easily). PaaS workloads may use provider-specific services that don’t exist elsewhere. SaaS workloads require data export and re-implementation on the new platform. Portability decreases as you move up the stack.

What is serverless computing?

Serverless is a subset of PaaS where you deploy individual functions rather than applications. The provider handles all infrastructure, scaling, and availability automatically. You pay per execution, not per hour. Examples: AWS Lambda, Azure Functions, Google Cloud Functions. Use cases: event-driven processing, API backends, and scheduled tasks.