This paper focuses on the theoretical modeling of sensor cloud, which is one of the first attempts in this direction. We endeavor to theoretically characterize virtualization, which is a fundamental mechanism for operations within the sensor-cloud architecture. Existing related research works on sensor cloud have primarily focused on the ideology and the challenges that wireless sensor network (WSN)-based applications typically encounter. However, none of the works has addressed theoretical characterization and analysis, which can be used for building models for solving different problems to be encountered in using sensor cloud. We present a mathematical formulation of sensor cloud, which is very important for studying the behavior of WSN-based applications in the sensor-cloud platform. We also suggested a paradigm shift of technology from traditional WSNs to sensor-cloud architecture. A detailed analysis is made based on the performance metrics, i.e., energy consumption, fault tolerance, and lifetime of a sensor node. A thorough evaluation of the cost effectiveness of sensor cloud is also done by examining the cash inflow and outflow characteristics from the perspective of every actor of the sensor cloud. Analytical results show that the sensor-cloud architecture outperforms a traditional WSN, by increasing the sensor lifetime by 3.25% and decreasing the energy consumption by 36.68%. We also observe that the technology shift to sensor cloud reduces the expenditure of an end user by 14.72%, on average. Index Terms-Modeling and simulation of sensor clouds, sensor cloud, virtualization, wireless sensor network (WSN).