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updated 1/27/2013 1:16:40 PM ET 2013-01-27T18:16:40

In his book Cloudonomics, author Joe Weinman explains how businesses can strategically employ cloud computing to both generate profitable revenue and deliver clear benefits to clients and customers. In this edited excerpt, Weinman outlines how small businesses can best use the cloud.

The cloud -- shorthand for "cloud computing" -- is appropriate for many things but not for everything. "It depends" is often the correct answer: Different companies with different strategies at different times may have different perspectives on where and why to use the cloud. Here are a few examples of how the cloud can benefit a small business.

Add competencies. The cloud may offer a competency that you don't have: tax-preparation algorithms embedded in an online tax service; information on flight schedules, prices and expected delays; stock-market data; and algorithms for finding matches between people and movies, and between people and people.

Build conversations, connections and communities. A series of communications between two participants is a conversation. Conversations create persistent connections. Conversations and connections among those with shared interests, values and goals create communities.

Related: How the Cloud Can Save You From a 'BYOD' Tech Nightmare

Communities are no longer based solely on geography: Where you were born once defined who you were. Now global networks help forge bonds between geographically disparate people.

Sometimes online communities reflect real-world relationships. For example, Classmates.com creates a virtual community driven by which school you went to. In other cases, the real world reflects connections created in cyberspace: I've met many people in person after first "meeting" them on Twitter. The cloud helps discover communities, discover members of those communities and maintain connections through directories and ongoing conversations.

Allow collaboration, competition and crowdsourcing. Competition is closely related to collaboration: Participants communicate with each other and share spaces with transient and permanent artifacts. In collaboration, goals are aligned; in competition, they are opposed. Multiplayer online games are a blend of both: Participants collaborate with each other to best other teams in games such as World of Warcraft.

Competition isn't restricted to wizards and space wars. Kaggle "is an arena where you can match your data science skills against a global cadre of experts." Teams of Ph.D.s solve problems by designing algorithms that crunch large data sets. EdisonNation.com offers contests to design retail products, such as beach furniture. A cloud approach can provide competitive incentives that can match unique problems with the handful of people globally who might be able to solve them.

Netflix did something similar with the Netflix Prize, which was based on an open competition to design the best movie-recommendation algorithm. If you liked The Matrix but also The Notebook, would you enjoy The Shining or The Big Chill more? Improving the quality of movie recommendations is important, since watching a stream of enjoyable movies helps ensure customers remain with the service. In other contexts, better recommendations increase upsell revenues.

Enable commerce and clearing. Markets that bring buyers and sellers together avoid the explosion of connections that would otherwise be required. In the 1700s, banks would settle accounts by having "walk clerks" from each bank travel to each other's bank in turn. As University of Warwick professor Martin Campbell-Kelly put it, "walking through the City of London with a large bag of money, was, to say the least, unwise." The clerks eventually agreed to meet at a single location at a regular time, and the London Banker's Clearing House became a hub for bank settlements early in 1800.

Related: The Advantages and Disadvantages of Cloud Storage Apps for Business

The concept of money itself -- whether rice in ancient Japan, or salt in the Roman Empire -- facilitates transactions between those holding goods that they would like to exchange and would otherwise have to barter. In concept, it acts as a hub. Money enabled the first markets and market economies.

In ancient Greece, the agora served as a meeting place and market. Today, the physical market has been partly supplanted by online auctions, the physical clearinghouse by financial payments and settlements networks, and the physical agora by the "ideagora," online marketplaces of ideas that help foster innovation.

"Markets" and matching are very general concepts: OpenTable.com matches prospective diners with open tables in restaurants. Kickstarter and Kiva match entrepreneurs needing funding with those with cash. ZocDoc matches patients with open doctors' appointments. TaskRabbit matches people with skills, time and a desire to earn some money with errands or tasks, like picking up dry cleaning or painting the front door.

Improve cash flow. For cash-strapped start-ups, small and midsize businesses, and even larger enterprises that are trying to conserve cash, the cash-flow benefits of the cloud can be substantial. Newline Products' chief financial officer Bill Bowers, formerly of Motorola, said that in evaluating do-it-yourself versus cloud services, "maybe from a payback analysis it's a toss-up . . . [but] in the cash-flow world, cloud is the way to go."

Expand capacity. Computing, network, memory and storage capacity is available on a pay-per-use, on-demand basis. Cloud capacity can also complement existing capacity. In the same way that access to a hotel can prove useful when guests suddenly arrive from out of town, cloud capacity can provide a perfect mix of flexibility at minimum cost.

Improve customer experience. Clouds generally are geographically dispersed, enabling content and applications to be deployed closer to end-users. In the same way that having a Starbucks on every corner reduces the time needed to grab a cup of coffee, having a content delivery or application delivery on every corner reduces the time required to interact with an application or retrieve content. Reduced time equals improved customer experience.

Related: 3 Tips for Keeping Data Safe in the Cloud (Infographic)
 

Copyright © 2013 Entrepreneur.com, Inc.

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