The analogy of a fully-owned car (On-premise), a leased car (SaaS) and a Taxi (Clod Computing) is helpful, and is explained well in the following video, courtesy of GoGrid.
While the definition of cloud computing continues to evolve, in essence you could use Cloud computing in 3 ways:
- Infrastructure as a Service - Think disk space, similar to Amazon's EC2.
- Platform as a Service - This is the evolving space. Here you have a server+Infrastructure available as a service.
- Application as a Service - Think Salesforce.com, however this is pay-per use, NOT pay-per-user.
The following diagrams illustrate this concept:
The ability to "plug-in" and pay-per-use of IT capability is ultimately quite compelling.