The Best Technology I've Ever Seen

Cloud computing is to storing and processing data what the electrical grid is to plugging in your television: a scalable way to deliver services while matching supply and demand across the grid.

Forrester Research calls it a classic disruptive technology. I call it the best technology I've ever seen.

What a mighty Web they weave
Developers have me convinced that cloud computing is inevitable. See, these diehards are taking to the technology in record numbers. Salesforce.com (NYSE: CRM  ) CEO Marc Benioff recently said that 80,000 code jockeys have created some 69,000 software programs using Force.com, its toolkit for cloud computing development.

To understand how massive those numbers are, you have to understand that writing for the Web is incredibly difficult. The mosaic of servers, software, and protocols that you'll find there are like cats and dogs -- they tolerate each other enough to not destroy the house, but they don't exactly get along, either.

Why, then, are developers turning to cloud computing for business? Efficiency. Mark Burns, a clinical data specialist for medical-robot maker Intuitive Surgical, told trade magazine InfoWorld that his company is using Force to create an application for collecting and sharing clinical trial information with partners via the Web. "We could build it using just their tools, so in essence, there was no programming," he said.

But there's more than efficiency at work here. Users spend more time in browsers than in any other software, making cloud computing supremely logical. Maintenance is simpler and the user environment is familiar, which results in less training and lower costs.

"The concept of cloud computing makes enormous sense," Special Olympics top techie Andre Mendes told trade magazine CIO in March. "It helps the CIO abstract another layer of complexity from the organization and concentrate on providing the higher levels of value."

In other words, cloud computing is revolutionizing the way companies think about their work.

Three ways to invest in the cloud
If investing in the cloud feels to you as complex as the mosaic -- there's that word again -- of systems, storage, and software needed for Web-based applications, take heart: It needn't be that way. Let's examine some of the key players in each area:

  • Systems. Servers are the engines of a cloud computing environment. Microsoft has deployed tens of thousands of them for Live.com and its other online services. Most often, providers are looking for boxes that are cheap, energy efficient, and durable. Rackable Systems (Nasdaq: RACK  ) has a reputation for producing good boxes. Intel and Advanced Micro Devices (NYSE: AMD  ) are working on energy-efficient server chips. And for those who wish to outsource, Akamai's (Nasdaq: AKAM  ) 36,000-server-strong private network -- governed by a patented algorithm -- is the digital highway for more than 20% of the world's Web traffic.
  • Storage. Companies that make disks, such as EMC (NYSE: EMC  ) and Network Appliance, are one way to invest in storage. But the way I prefer -- because it commands fatter margins -- is to invest in companies that produce software for managing stored data, like CommVault Systems. It's also more important for cloud computing.
  • Software. But storage and servers are like an orchestra without a conductor; software turns what would otherwise be noise into music. For server operating systems, Microsoft, Sun Microsystems, and Red Hat (NYSE: RHT  ) are the key players. For user interfaces, Adobe's (Nasdaq: ADBE  ) AIR could transform the browser into an OS. For development tools, Force is emerging, but open source options such as Eclipse are also popular and could be made to create software for the cloud.

In other words, invest in infrastructure rather than applications software. Infrastructure is far more difficult to replace.

The Foolish bottom line
The two truths of tech investing argue for the ascendancy of cloud computing. Those truths are:

  1. My best ideas will always be under assault from something newer.
  2. Occasionally, these newer ideas will overtake my best ideas.

At Motley Fool Rule Breakers, we believe cloud computing will massively disrupt the desktop computing industry that came before it -- and we think three stocks, in particular, will profit handsomely from the shift. Akamai is one, and the other two were profiled in our June issue.

If you'd like to find out what they are -- and gain access to all of our best ideas for new money now -- click here for a 30-day free trial. There's no obligation to subscribe.

At the time of publication, Fool contributor Tim Beyers owned shares of Akamai. Akamai and Intuitive Surgical are Motley Fool Rule Breakers recommendations. Intel and Microsoft are Inside Value picks. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (60)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2008, at 1:49 PM, umakethecall wrote:

    More of a question than a comment.

    Where does VMware fall into the cloud universe?

    Obviously we are going from 8 cylinder gas guzzling hot rods, to 4 cylinder NOS powered internet.

    Clouds are growing, money storm?

  • Report this Comment On July 31, 2008, at 5:49 PM, Dustysage wrote:

    Amazon offers one of the largest and most affordable cloud computing environments. The should probably be listed as well.

  • Report this Comment On August 01, 2008, at 1:33 PM, Nainara wrote:

    In the world of management, "cloud computing" is just a euphamism for outsourcing infrastructure and middleware tiers. I suspect that this practice may be especially beneficial for small businesses. Very few big companies with large scale deployments and volumes of business-sensitive information will benefit from this technology in the short to mid term.

  • Report this Comment On August 03, 2008, at 8:40 PM, dividendgrowth wrote:

    The field is utterly crowded with cash rich heavyweights. If no clear winner emerges anytime soon, it's just going to be another business like the airlines.

  • Report this Comment On August 04, 2008, at 1:59 AM, JjcampNR wrote:

    VMware is going to play a big part in the cloud, it's odd that Sun is mentioned here while VMW is not. VMware appears to already be gearing up for cloud computing. Besides their normal ESX / Infrastructure 3 offering you can look to their virtual desktop products like VDI/VDM/ThinApp for the beginnings of their desktop virtualization software's move towards the cloud.

    The hypervisor is old news, the real money will be made in software products that can manage all these virtual devices that will make up the slices that build the cloud.

  • Report this Comment On August 04, 2008, at 12:37 PM, TMFMileHigh wrote:

    >> The field is utterly crowded with cash rich heavyweights. If no clear winner emerges anytime soon, it's just going to be another business like the airlines.

    How do you define soon, dividendgrowth? Tech cycles have historically lasted decades and created billions in value. Often during these cycles, subsets of incumbents and start-ups prosper. So, unless you define "soon" as "greater than 10 years from now," I think your argument ignores history. FWIW and Foolish best, Tim

  • Report this Comment On August 05, 2008, at 1:32 AM, 9370741 wrote:

    From the perspective of a principal systems engineer at an established Silicon Valley mid-sized Internet company, I would say that cloud computing is for now an incremental step in virtual server provisioning for the unwashed masses.

    None of my friends who run other heavily Xen-ified shops -- ripe for this sort of thing you would think -- are contemplating a move to something like EC2. The idea is a complete non-starter.

    However, outfits that are technically weak should derive a benefit from being able to pick and choose among a library of pre-built VMs and to press buttons to effect rudimentary management thereafter. Fantastic.

    The sum of my current impression is that in the near future cloud computing will for the end user suck less than the "classic" virtual server offering.

    But try as you may with whatever gimmick du jour, you can't wish away the (growing!) complexity of an IT infrastructure. Trying to hide it behind a clickety-click interface -- the way of Microsoft -- serves to lobotomize the product. There is a market for that in lobotomized shops, to be sure, but the appeal is far from universal.

  • Report this Comment On November 20, 2008, at 4:22 PM, anotherfoolforIT wrote:

    1st - the author has no concept of cloud computing - anyone cites Microsoft as a player in cloud computing just doesn't get it. Microsoft has a single tenant model throughout their business - the key to the cloud is multi-tenancy.

    And that fact that Amazon, Salesforce.com, and Google (3 of the biggest players in cloud computing) weren't even mentioned further shows his incompetence.

    As for some other comments - yes, it's a no brainer for small and mid size companies. But it's also hugely compelling for very large scale enterprises as well. I worked for over a decade at the largest chip company in the world - and saw project after project fail or get cancelled because the start up costs were just too high.

    And most of the current offerings aren't just 'outsourcing' - it's also creating new, open platforms that let you pick the solution to set up on them - not the proprietary solutions that on-premise vendors offer today.

  • Report this Comment On November 24, 2008, at 9:47 AM, TMFMileHigh wrote:

    >> Salesforce.com (NYSE: CRM) CEO Marc Benioff recently said that 80,000 code jockeys have created some 69,000 software programs using Force.com, its toolkit for cloud computing development.

    Excerpted from the article. Just saying. Otherwise, thanks for commenting, anotherfoolforIT. Foolish best, Tim (TMFMileHigh)

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