What is hybrid cloud?

A core advantage of hybrid cloud is agility, which allows organizations to respond to change and capture growth opportunities by rapidly provisioning computer resources. In addition, hybrid cloud integration enables companies to harness the latest technological advancements, including artificial intelligence (AI), IoT and edge computing, to gain competitive advantage.

As enterprises move AI initiatives from pilot programs into production, demand for hybrid cloud has accelerated. This challenge required businesses to make strategic decisions about where AI workloads run, where data lives and who governs it. This approach includes data residency and data sovereignty requirements that vary across industries and regions.

According to IMARC Group, the global hybrid cloud market size reached USD 171.6 billion in 2025. It is also projected to expand to USD 619.6 billion by 2034, at a compound annual growth rate (CAGR) of 14.88%. Increased demand for interoperability, data security and regulatory compliance are among the key factors driving the hybrid cloud market.

Also, the need to modernize legacy systems, accelerate digital transformation and harness AI technologies, including machine learning (ML) and big data analytics, are driving this adoption.

Hybrid cloud infrastructure varies according to an organization’s specific business objectives, yet all still share a mix of computing environments, including:

“On premises” represents a traditional computing environment where an organization runs and manages its own hardware, software, data storage and other computing resources at its own physical location. Examples include an office building or an on-premises data center.

Private cloud is a cloud computing environment where all resources are isolated and operated exclusively for one customer. Private cloud combines the many benefits of cloud computing with the security and control of on-premises IT infrastructure.

Organizations in industries that deal with strict regulatory compliance and sensitive (for example, banking, healthcare and government) usually require private cloud settings.

Public cloud is a cloud computing setting hosted by a third-party cloud service provider (CSP), such as Amazon Web Services (AWS), Microsoft Azure, IBM Cloud® or Google Cloud.

These CSPs host public cloud IT resources like virtual machines (VMs) to complete enterprise-grade infrastructures and development platforms over the public internet on a “pay-as-you-go” pricing basis.

These are four main public cloud service offerings that provide different levels of support and service:

1. Software-as-a-Service (SaaS) is on-demand access to ready-to-use, cloud-hosted application software.
2. Platform-as-a-Service (PaaS) is a complete cloud platform—hardware, software and infrastructure—for developing, running and managing applications.
3. Infrastructure-as-a-Service (IaaS) is a cloud computing model that delivers fundamental compute, network and storage resources.
4. Serverless computing (serverless) is an application and execution model that allows developers to build and run application code without provisioning or managing servers or back-end infrastructure.

For a deeper dive on how these different public cloud service offerings compare, see “What are IaaS, PaaS and SaaS?”

Other than a mix of on-premises, private cloud and public cloud settings, hybrid cloud architecture relies on these critical components:

• Network connectivity
• Virtualization
• Containerization
• Hybrid cloud management platform

Hybrid cloud deployments require robust networking capabilities, including wide area network (WAN), virtual private network (VPN) and application programming interfaces (APIs).

Hybrid cloud architecture relies on virtualization technology, enabling the division of a single computer’s hardware components—such as processors, memory and storage—into multiple virtual machines. Virtualization enables better resource usage and flexibility by allowing users to run multiple applications and operating systems on the same physical hardware.

Containerization is the process of packaging software code along with only the essential operating system (OS) libraries and dependencies needed to run it. This method creates a single lightweight executable element (called a container) that operates consistently across any infrastructure.

Modern hybrid cloud computing involves a unified platform for discovering, operating and managing on-premises, private and public cloud data and resources.

Check out this video, "Hybrid Cloud Explained," which reveals how organizations can tailor a hybrid cloud environment to meet their business needs.

Initially, hybrid cloud architecture was designed to convert parts of a company’s on-premises data center into private cloud infrastructure, streamlining resource allocation and scalability. It also focused on connecting that infrastructure to public cloud environments hosted off-premises by a public cloud provider. Businesses accomplished this using a prepackaged hybrid cloud solution, such as Red Hat® OpenStack®.

Other methods included employing sophisticated enterprise middleware to integrate cloud resources across environments. In addition, unified management tools were used to monitor, allocate and manage those resources from a central console or “single pane of glass.”

Today, a hybrid cloud approach focuses less on physical connectivity and more on supporting the portability of workloads across all cloud environments. It also automates workload deployment to the best cloud environment for each business need. Several trends have driven this shift.

First, organizations are building new applications and modernizing legacy applications to use cloud-native technologies. These technologies enable consistent and reliable development, deployment, management and performance across cloud environments and across cloud vendors.

Specifically, they’re building or transforming applications to use microservices architecture, which breaks applications into smaller, loosely coupled, reusable components focused on specific business functions. And they’re deploying these applications in containers, which have become the de facto compute units of modern cloud-native applications

At a higher level, public and private clouds are no longer physical ‘locations’ to connect. For example, many cloud vendors now offer public cloud services that run in their customer’s on-premises data centers. Private clouds, when run exclusively on-premises, are now often hosted in off-premises data centers on virtual private networks (VPNs) or virtual private clouds (VPCs). Private clouds are also hosted on dedicated infrastructure rented from third-party providers.

What’s more, infrastructure virtualization (called Infrastructure as Code) lets developers create these environments on demand by using any compute resources or cloud resources located behind or beyond the firewall. This technology has taken on greater significance since the explosive growth of edge computing. This change improves global application performance by moving workloads and data closer to IoT devices or local edge servers in distributed hybrid infrastructure settings.

As AI workloads expand, hybrid cloud strategy plays a key role in how organizations manage where those workloads run. Training large language models (LLMs), running AI inferencing and deploying AI agents all require varying underlying infrastructure. Hybrid cloud gives organizations the flexibility to optimize placement across on-premises, private cloud and public cloud based on latency, data residency, cost and compliance needs.

The benefits of hybrid cloud are also impacting current application modernization strategies. AI tools are speeding up code refactoring and legacy application transformation, including the modernization of COBOL and other traditional languages.

That said, converting or rewriting code addresses only part of the modernization challenge. The underlying platform, which includes the hardware and software stack that spans on-premises to edge environments, dictates where AI workloads need to run. This process includes transaction processing, security and resilience requirements that are crucial across industries, including retail, finance and healthcare. In these environments, hybrid cloud supports modernized workloads to help businesses achieve performance, scalability and security.

Today, most enterprise businesses rely on a hybrid multicloud environment. Multicloud is a cloud computing solution that combines public cloud services from different cloud vendors and is portable across multiple cloud providers’ cloud infrastructures. A hybrid multicloud approach creates greater flexibility and reduces an organization’s dependency on one vendor, preventing vendor lock-in.

A unified hybrid multicloud system includes these key components:

• Support for cloud-native application development and deployment across all cloud types (public and private) and cloud providers
• A single operating system across different environments
  
• A container orchestration platform—typically Kubernetes—that automates the deployment of applications across cloud environments

Cloud-native development lets developers transform monolithic applications into units of business-focused functions that can run anywhere and be reused within various applications.

A standard operating system lets developers build any hardware dependency into any container. Kubernetes orchestration and automation give developers granular, set-it-and-forget-it control over container configuration and deployment (including security features for real-time monitoring, load balancing, scalability and more) across multiple cloud environments.

In a report from the IBM Institute for Business Value (IBV), the value derived from a hybrid multicloud platform technology and operating model at scale is 2.5 times the value derived from a single platform, single cloud vendor approach.

Organizations are realizing significant benefits from such a platform, including:

• Improved developer productivity
• Greater infrastructure efficiency
• Enhanced regulatory compliance and security
• Overall business acceleration

A unified hybrid cloud platform can help expand the adoption of agile and DevOps methodologies and enable development teams to develop once and deploy to all clouds.

With more granular control over resources, development and IT operations teams can optimize spending across public cloud services, private clouds and cloud vendors. Hybrid cloud also helps companies modernize applications faster and connect cloud services to data on cloud or on-premises infrastructure in ways that deliver new value.

A unified platform lets an organization draw on best in industry cloud security and regulatory compliance technologies and implement security and compliance across all environments in a consistent way.

This acceleration includes shorter product development cycles, accelerated innovation and time-to-market, faster response to customer feedback and more rapid delivery of applications closer to the client (for example, edge e-commerce).

Building the right hybrid cloud model is complex and requires a hybrid cloud management strategy. While each hybrid cloud management strategy looks different based on individual business goals, organizations should follow a few basic steps.

According to McKinsey & Company, the use of AI in business operations has doubled since 2017.² 

Traditional AI has been embedded in enterprise business technology for decades. These tools included machine learning (ML), natural language processing (NLP) and generative AI (gen AI), marked by the launch of ChatGPT in 2022. These technologies created a significant shift in how businesses approach AI. Today, enterprises are using gen AI to improve virtual assistants for better customer experiences, automate routine processes for faster workflows and more.

Modern hybrid cloud settings play a key role here, supporting gen AI workloads, which require big data processing and massive compute power. In an IBM IBV survey conducted by Harris Poll, 68% of hybrid cloud adopters have already established formal, organization-wide policies to direct their approach to generative AI.

The latest evolution of AI for business focuses on agentic AI. These systems can autonomously decide and run complex workflows on behalf of a user or another system. For example, in e-commerce settings, an agentic AI system can process a customer order, check inventory, initiate fulfillment and send a confirmation without any human intervention at each step.

This technology requires fast and trusted access to data wherever it resides, along with robust security and governance, all of which hybrid cloud infrastructure is designed to support.

As global AI adoption increases, data sovereignty has evolved beyond data residency. Now, it encompasses AI sovereignty, which is the ability of an organization or nation to control its AI infrastructure stack, including data, AI models and operations. According to Gartner, digital sovereignty, AI/ML demand and multicloud interoperability are among the top trends shaping cloud adoption over the next several years.³

Hybrid cloud offers businesses numerous use cases, such as:

• Security and regulatory compliance
• Scalability and resilience
• Rapid adoption of new technology
• Enhancing legacy applications
• Cloud migration
• Resource optimization and cost savings
• Sustainability
• Backup and disaster recovery (BDR)

Reserve behind-the-firewall private cloud resources for sensitive data and highly regulated workloads, including the ones driven by data privacy concerns. Use more economical public cloud resources for less sensitive workloads and data.

Use public cloud compute and cloud storage resources to scale up quickly, automatically and inexpensively in response to unplanned spikes in traffic without impacting private cloud workloads (called 'cloud bursting’).

Adopt or switch to the latest AI or SaaS advancements (for example, AI agentic tools, AI-driven automation platforms) and even integrate those solutions into existing applications without provisioning new on-premises infrastructure.

Use public cloud services to improve the user experience of existing apps or to extend them to new devices. As AI tools accelerate legacy application modernization, including code refactoring and the transformation of languages like COBOL, hybrid cloud provides the necessary infrastructure to modernize and run those workloads.

Employ cloud migration strategies, including VMware migration. ‘Lift and shift‘ existing on-premises workloads to virtualized public cloud infrastructure to reduce the on-premises data center footprint and scale as needed without more capital equipment investment.

Run workloads with predictable capacity on private cloud and migrate more variable workloads to public cloud. Use public cloud infrastructure to quickly 'spin up' development and test resources as needed.

Hybrid cloud supports sustainability goals, giving organizations the flexibility to run workloads in the most energy-efficient environment. In a Gartner study, over 50% of global organizations plan to prioritize sustainability as part of cloud procurement decisions by 2029.⁴

Use a hybrid cloud computing model for backup and disaster recovery (BDR) and wider business continuity planning. If there is data loss or corruption, BDR can help by making copies of files and storing them in one or more remote locations and using the copies.