Investing in Cloud Computing

July 21, 2010 by  
Filed under Commentary, Investment Strategy, Stocks

Savvy tech investors are always looking for the next best thing. They’re not content with buying the Q’s (PowerShares Nasdaq 100 Index: QQQQ). They want the latest breakthrough technology stocks before everyone knows about them – think Twitter or cloud computing.  The latter isn’t new, but it’s been getting more attention over the past few years. Tech investors should continue to pay attention.

We first discussed the cloud computing trend on March 2, 2009. Although we did not officially recommend Salesforce (CRM) we highlighted how Salesforce was using “the cloud” to their advantage. Since then, CRM has grown an astounding 235%! CRM has risen on the strength of their market position and industry trends in cloud computing. In January, we posted a cloud computing follow-up discussing other merits of the technology. It’s time to revisit the cloud.

Large organizations are abandoning boxed software and opting for more agile software that is supported off-site – cloud computing.  According to the National Institute of Standards and Technology, cloud computing incorporates five essential elements:

  • On-demand self-service
  • Broad network access
  • Resource pooling
  • Pay-for-use service
  • Elastic scale

Providers market the services in three different models: software-as-a-service, platform-as-a-service, and infrastructure-as-a-service. Software-as-a-service (SaaS) delivers a complete single software solution as opposed to a shelf-bought application. A SaaS example for customer relationship management would be Zoho or SalesForce. Platform-as-a-service (PaaS) is more complex. It offers development and middleware hosted by the vendor – and is more expensive for businesses. An example of PaaS would be Google AppEngine or Long Jump. Finally, infrastructure-as-a-service  (IaaS) is the raw infrastructure for things like servers and storage. IaaS is sold by companies like Amazon Web Services and GoGrid.

Morningstar recently joined the cloud computing conversation.  They distinguished the “public cloud” from the “private cloud”. The public cloud relates to applications like Google docs or Yahoo mail. These applications are shared by multiple users. On the other hand, the private cloud relates to enterprise-level solutions like the ones offered by the companies above. These services are usually behind a company firewall and only available to company users.

Businesses are moving towards the private cloud for one primary reason: support. The companies that support these services the best will do well as large companies move their antiquated software into cloud services. That will help marketers of cloud services. We expect even more momentum to build in the cloud computing space. Make sure you get in on the action.

Disclosure covering writer, editor, publisher, and affiliates: Long QQQQ. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Comments

2 Responses to “Investing in Cloud Computing”

  1. Tweets that mention Investing in Cloud Computing | Invest With An Edge -- Topsy.com on July 21st, 2010 12:51 pm

    [...] This post was mentioned on Twitter by The Software Gang, Cloud Blogs. Cloud Blogs said: #Cloud #Blogs Investing in Cloud Computing | Invest With An Edge: How software-as-a-service, platform-as-a-ser… http://bit.ly/dDjTd5 #TCN [...]

  2. Bo on July 22nd, 2010 1:17 pm

    I work at a company that offers email archiving services by leveraging the cloud infrastructure and this art Brandon is dead on with this insight. People tend to think that building their own infrastructure will eventually pay for itself but with all the maintenance that comes with that hardware it’s just not true. We’ve witnessed the great cost saving resulting from the reduced complexity in IT infrastructure only because their archives were outsourced. There is great opportunity to do more with less if you invest in the cloud, we all know in this slow economy you have to do whatever you can.

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