Inside the Cloud Computing Trend

Chad Fraser| Investingdaily

The move toward cloud computing continues to pick up speed. According to a September report from technology research firm IDC, global spending on public IT cloud services will total $47.4 billion in 2013 and will rise to over $107 billion in 2017.

In all, cloud computing’s compound annual growth rate (CAGR) during the period (23.5%) is expected to be five times that of the IT industry as a whole.

IDC sees the U.S. as holding its place as the largest public IT cloud services market, though its share will fall from 56.9% in 2013 to 43.9% in 2017. In emerging markets, however, cloud spending is expected to post a CAGR of 37.3%, nearly twice the rate of developed countries.

Cloud Computing 101

In a broad sense, cloud computing refers to the accessing of data or applications on remote servers via the Internet. That’s different from the traditional model of local computing, where you access most of your resources either on your own machine or through your company’s internal network.

InfoWorld defines it this way:

“Cloud computing comes into focus only when you think about what IT always needs: a way to increase capacity or add capabilities on the fly without investing in new infrastructure, training new personnel, or licensing new software. Cloud computing encompasses any subscription-based or pay-per-use service that, in real time over the Internet, extends IT’s existing capabilities.”

Cost savings are a key benefit to moving to a cloud-based model. Cloud computing can also reduce IT issues that can lower productivity. However, IDC senior vice-president and chief analyst Frank Gens sees the cloud moving past its initial appeal of simply boosting efficiency.

“The first wave of cloud services adoption was focused on improving the efficiency of the IT department,” he said. “Over the next several years, the primary driver for cloud adoption will shift from economics to innovation as leading-edge companies invest in cloud services as the foundation for new competitive offerings.”

There are three common cloud computing models:

  • Software as a service (SaaS), or programs provided to customers over the Internet. Benefits include the ability to purchase on an as-needed basis, as well as no longer having to install and maintain software within the company. One of the best-known business-focused SaaS providers is Salesforce.com (NYSE: CRM), which offers customer relationship management software.

    IDC sees SaaS as maintaining its place as the largest slice of the cloud services market in 2017, accounting for 59.7% of total cloud revenue that year.

  • Platform as a service (PaaS) allows developers to create new applications using tools supplied by the cloud provider. IDC sees PaaS as the fastest-growing category, with a projected CAGR of 29.7% between 2013 and 2017.
  • Infrastructure as a service (IaaS) involves the offering of storage and networking capabilities to users on an on-demand basis. IaaS is forecast to post the second-highest CAGR, at 27.2%.

Amazon and Symantec: Two Very Different Cloud Stocks

Here’s a brief look at two companies that provide unique services to users and providers of cloud-based services.

  • Amazon.com (NasdaqGS: AMZN) isn’t a name most investors think of as a cloud infrastructure provider, but the company aims to build its presence in the field through its Amazon Web Services division. This business offers its clients a set of computing, storage and database services that they access through the Internet on a pay-as-you-go basis.

    The division provides only a small part of Amazon’s revenue, but it continues to grow. In the second quarter, it became the first major cloud provider to achieve FedRAMP compliance, which recognizes its ability to meet security requirements and compliance mandates for handling government data. That should make it easier for government agencies to adopt Amazon’s services.

    The company is already enjoying some success in this area. Amazon Web Services recently made headlines after it was awarded a $600-million cloud computing contract by the CIA. Competitor International Business Machines (NYSE: IBM) challenged the awarding of the deal to Amazon, and the Government Accountability Office (GAO) ordered the CIA to reopen bidding. However, on October 8, a judge sided with Amazon.

  • Symantec Corp. (NasdaqGS: SYMC) sells the highly popular Norton Antivirus programs. It’s the leader in the computer security market, with a market share that’s about twice that of Intel’s (NasdaqGS: INTC) McAfee software.

    As Investing Daily managing director John Persinos reported in an April 5, 2013, article in our Personal Finance newsletter, cybersecurity is a fast-growing business. According to IDC, the global network security market generated $9 billion of revenue in 2012, up 8% from the year before, and is set to grow at a similar rate this year.

    Symantec is a direct beneficiary of the rise in computer-security spending. It also offers numerous products and services through the cloud, such as Symantec Endpoint Protection Small Business Edition, which helps smaller firms protect their computers and servers from viruses and malware. It also provides cloud-based archiving services that help companies securely store, manage and analyze information.

These are just two of the many options for investing in the growth of cloud computing. In addition to Symantec, Amazon, IBM and Salesforce.com, you could also look to Microsoft (NasdaqGS: MSFT) and Oracle (NasdaqGS: ORCL), both of which continue to expand their cloud offerings.

Another interesting cloud play is Adobe Systems (NasdaqGS: ADBE), which is transitioning to selling its Creative Suite of design programs, including Photoshop, Illustrator and InDesign, through a SaaS subscription model.

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