Investing in Cloud Computing

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.