With flashy TV ads inviting home users to “move to the cloud” and the widespread popularity of services like Salesforce, and Amazon’s S3, the concept of cloud computing is everywhere these days. But what does it really mean – and should your business be taking advantage?

Cloud computing in a nutshell

As often happens with emerging technologies, the term cloud computing means different things to different people – particularly among competing cloud service providers. The general sense is clear: cloud computing is using external computers to handle some of your IT work. Whether that means just remote servers or more traditional hosted applications is up for some debate, but the term is often used to mean any kind of remote IT service, from simple data backup to virtual servers to hosted apps.

What services are available through cloud computing?

Simply put? Almost anything you do on a computer. Some are primarily for IT departments or companies that sell software: distributed web or database hosting, APIs and web services, and even the old familiar remote backup service.

More recognizable to most businesspeople are full blown hosted applications: from CRM and HR applications to specialized software like maintenance management or medical records systems, application providers are moving to the cloud in every industry. And thanks to VoIP, cloud “computing” is even moving into telecom: hosted phone services replace the PBX server in your data closet with a remotely managed system that delivers your calls and telephone features via the network.

What are the benefits?

The main advantages center on cost savings and reliability. Cost savings spring from reduced demands on your business to maintain servers, hire IT staff, and pay expensive up-front software licensing fees.

Reliability improvements stem from two areas: first, cloud computing vendors run high-end datacenters that are miles above most small businesses in terms of redundancy and uptime. Second, most cloud services are distributed in nature: the vendors can run your services in two or more physical locations and switch back and forth between them with little to no disruption.

There are other benefits as well. For example, if you’re using cloud-based applications, you can count on always having access to the most up to date version of the software, without the hassle of upgrades. Remote employees can generally access your applications from wherever they are. And cloud service providers have experts in security to protect your data from hackers and thieves. It may seem counter-intuitive, but in many cases your data will actually be safer in a remote location than it would be on your own internal servers.

What are the drawbacks?

Of course there are some drawbacks to cloud computing. One is long-term cost: while cloud-based services are far cheaper than purchasing and running your own servers and software initially, the small monthly fees can add up over time – especially if your usage grows down the line, pushing up those recurring costs. Over years of use, you may find that the cost savings aren’t as dramatic as they seem at first.

There’s also a level of control that you give up when using hosted applications or servers. While vendors can usually customize the appearance and functionality of an application, or tweak the settings on your virtual servers, there are often limits to the extent of the customization you can get – or additional fees for the work.

Finally, while it’s not a regular occurrence at most workplaces, Internet connections and networks do go down from time to time, which can leave you without access to your servers, your data, or your critical applications. This is a tradeoff you’ll have to weigh based on your own network availability and importance of the work you want to move to the cloud.

The future is… cloudy

Trendy though it may seem, cloud computing isn’t going away. The benefits of running on distributed computers are simply too significant. But there will always be situations where keeping certain tools in-house is the best decision for a business, too. The message for business owners, as ever, is to be thoughtful about what’s best for your business.

Want to get started? PC Magazine put together a list of 13 cloud-based apps for small businesses that might give you some ideas.