A simple example of cloud computing is Yahoo email, Gmail, or Hotmail etc. All you need is just an internet connection and you can start sending emails. The server and email management software is all on the cloud ( internet) and is totally managed by the cloud service provider Yahoo , Google etc. The consumer gets to use the software alone and enjoy the benefits. The analogy is , 'If you need milk , would you buy a cow ?' All the users or consumers need is to get the benefits of using the software or hardware of the computer like sending emails etc. Just to get this benefit (milk) why should a consumer buy a (cow) software /hardware ?
A cloud can be private or public. A public cloud sells services to anyone on the Internet. (Currently, Amazon Web Services is the largest public cloud provider.) A private cloud is a proprietary network or a data center that supplies hosted services to a limited number of people. When a service provider uses public cloud resources to create their private cloud, the result is called a virtual private cloud. Private or public, the goal of cloud computing is to provide easy, scalable access to computing resources and IT services.
The services are broadly divided into three categories: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS).
Infrastructure-as-a-Service like Amazon Web Services provides virtual server instance API) to start, stop, access and configure their virtual servers and storage. In the enterprise, cloud computing allows a company to pay for only as much capacity as is needed, and bring more online as soon as required. Because this pay-for-what-you-use model resembles the way electricity, fuel and water are consumed, it's sometimes referred to as utility computing.
Platform-as-a-service in the cloud is defined as a set of software and product development tools hosted on the provider's infrastructure. Developers create applications on the provider's platform over the Internet. PaaS providers may use APIs, website portals or gateway software installed on the customer's computer. Force.com, (an outgrowth of Salesforce.com) and GoogleApps are examples of PaaS.
In the software-as-a-service cloud model, the vendor supplies the hardware infrastructure, the software product and interacts with the user through a front-end portal. SaaS is a very broad market. Services can be anything from Web-based email to inventory control and database processing. Because the service provider hosts both the application and the data, the end user is free to use the service from anywhere.