IaaS (Infrastructure as a Service)

The foundational cloud computing model that turned capital expenditure into operational flexibility — and reshaped corporate strategy in the process.

The global IaaS market exceeded $200 billion in 2025, growing at approximately 25% year-over-year. For most enterprises, IaaS is no longer a strategic choice but a baseline operating assumption — the question is not whether to use cloud infrastructure, but how to optimise its cost, security, and performance. Organisations that fail to manage their IaaS estates effectively are collectively wasting an estimated $90 billion annually on unused or misconfigured cloud resources.

What It Is

Infrastructure as a Service, or IaaS, is a cloud computing model in which a provider rents you fundamental computing resources — virtual servers, storage, networking, and sometimes physical hardware — on a pay-as-you-go basis. Rather than purchasing and maintaining your own data centre equipment, you consume these resources as a utility, much like electricity. You pay for what you use, scale up or down as demand changes, and the provider handles the physical infrastructure, power, cooling, and basic maintenance.

Think of it as the difference between owning a generator and connecting to the national grid. Owning a generator (on-premises infrastructure) gives you complete control but requires upfront capital, ongoing maintenance, and capacity planning. Connecting to the grid (IaaS) provides virtually unlimited capacity on demand, with costs proportional to your consumption. The three dominant providers — Amazon Web Services, Microsoft Azure, and Google Cloud Platform — collectively operate hundreds of data centres worldwide, each offering thousands of server configurations optimised for different workloads.

IaaS sits at the bottom of the cloud computing stack, beneath Platform as a Service (PaaS) and Software as a Service (SaaS). It offers the greatest flexibility and control — you choose the operating system, middleware, and applications — but also requires the most management effort. In 2026, the typical large enterprise runs 60-70% of its workloads on IaaS, with the remainder split between on-premises infrastructure and higher-level cloud services.

Why It Matters for Business

IaaS transforms how organisations manage capital and operational expenditure. A mid-sized company that previously invested $5-10 million in a data centre refresh cycle can instead consume equivalent computing capacity for $50,000-100,000 per month, with no upfront capital outlay and the flexibility to scale instantly. This shifts IT from a capital expenditure model to an operational expenditure model, improving balance sheet metrics and freeing capital for core business investment. During the COVID-19 pandemic, organisations with mature IaaS strategies scaled their digital operations by 3-5x in weeks; those reliant on on-premises infrastructure struggled for months.

However, the flexibility of IaaS is a double-edged sword. Without strong governance, cloud costs can spiral out of control. Industry analysis consistently finds that 25-35% of cloud spending is wasted on idle resources, oversized virtual machines, and unattached storage volumes. A Fortune 500 company with a $50 million annual cloud bill may be burning $12-17 million on unnecessary expenditure. FinOps — the discipline of bringing financial accountability to cloud spending — has emerged as a critical organisational capability, with dedicated teams and tools to monitor, optimise, and forecast IaaS costs.

Vendor lock-in represents another strategic concern. Whilst IaaS providers promote portability, the reality is that deeply integrating with a single provider's proprietary services — AWS Lambda, Azure Active Directory, Google BigQuery — creates switching costs that can run into tens of millions of dollars for large enterprises. Boards should ensure that cloud strategy includes explicit exit provisions and architectural patterns that maintain meaningful portability.

Enterprise Use Cases

Netflix is perhaps the most famous IaaS success story. Having migrated entirely from its own data centres to AWS between 2008 and 2016, Netflix now streams to over 260 million subscribers worldwide, dynamically scaling its AWS infrastructure to handle peak evening viewing that can be 5-10x average load. The company estimates that running its own data centres at equivalent scale and reliability would cost 3-4 times more than its current AWS spend. Capital One adopted a "cloud-first" strategy in 2015 and completed its full migration to AWS in 2020, becoming the first major US bank to operate without its own data centres. The move reduced infrastructure costs by 25% and accelerated product development cycles from months to days.

In manufacturing, Siemens migrated over 3,000 applications to Azure IaaS and PaaS, enabling its industrial IoT platform MindSphere to process data from over 1.5 million connected machines globally. The IaaS foundation allows Siemens to offer customers elastic scaling — a factory running a heavy simulation workload at 2 PM automatically gets more compute, then releases it at 6 PM without manual intervention. GE Healthcare reduced its data centre footprint from 34 global facilities to a handful by migrating to AWS and Azure, cutting infrastructure costs by 40% and improving system uptime from 99.5% to 99.99%.

Startups leverage IaaS as a competitive weapon. Companies like Canva, Atlassian, and Stripe built billion-dollar businesses without ever owning a physical server, directing capital towards product development and market expansion rather than data centre operations.

Vendor Landscape

The IaaS market is a three-horse race. Amazon Web Services (AWS) leads with approximately 31% market share, followed by Microsoft Azure at 25% and Google Cloud Platform (GCP) at 12%. AWS offers the broadest service portfolio with over 200 services and the most mature ecosystem; Azure is the default choice for enterprises deeply invested in the Microsoft stack (Active Directory, Office 365, Windows Server); and GCP differentiates on data analytics, AI/ML capabilities, and competitive pricing. Alibaba Cloud dominates in China and parts of Asia-Pacific with approximately 5% global share. IBM Cloud, Oracle Cloud Infrastructure (OCI), and OVHcloud serve niche segments — Oracle particularly has gained traction with organisations running large Oracle database estates, offering significant licensing incentives for OCI adoption. Pricing is complex and highly negotiable: published on-demand prices are typically 30-50% higher than what large enterprises pay under committed-use contracts, and multi-year agreements exceeding $10 million can unlock discounts of 40-60% off list prices.

Strategic Considerations

Adopt a multi-cloud or cloud-agnostic strategy only if your business genuinely requires it — true multi-cloud adds 20-30% operational overhead and is warranted primarily for regulatory compliance, geopolitical risk mitigation, or avoiding excessive vendor concentration. For most organisations, a primary provider with a secondary for specific workloads is the pragmatic approach. Invest heavily in FinOps capabilities from day one; the cost of a dedicated cloud financial management team is dwarfed by the savings they deliver. Negotiate enterprise agreements with your primary provider every 1-3 years, and engage independent cloud brokers who can benchmark your pricing against market rates. Finally, plan for repatriation: a growing number of organisations are moving specific workloads back to on-premises or colocation facilities when cloud economics become unfavourable for steady-state, predictable workloads.