The biggest challenges in the area of AAL service development is heterogeneity. Possible solution to accommodate dynamic behavior of AAL system needs and diversity of system requirements is to use higher level of system abstraction by using ontology. We describe a development methodology, structure, format selection and evaluation of a proposed AAL ontology building on top of well established ontologies. We give further details on the AAL cloud system utilizing this ontology as an underlying ontology-based data model. In the case study we discuss how the AAL ontology enables service creation and orchestration and discuss needed and planned future work.