Sizing Up the Cloud-Computing Revolution

Cloud computing is no longer some obscure concept, fit only for cocktail banter at Silicon Valley parties. The clouds are blooming over American and global business like a cirrostratus haze of new thinking -- one that inevitably colors the entire landscape.

Last week alone saw two major cloud-computing announcements, each of which promises to make a real difference in the enterprise computing market.

Microsoft (Nasdaq: MSFT  ) and Hewlett-Packard (NYSE: HPQ  ) unveiled a joint commitment of $250 million to research and development of turnkey cloud-computing solutions. With virtual server software and operating systems by Microsoft and specially tuned hardware from HP, these prepackaged servers promise to make it easy to set up and run cloud services in any type of business or organization.

Merrill Lynch suggests that the cloud-computing market will become a $160 billion annual business by 2011, which is right around the corner. The HP and Microsoft deal aims squarely for the enterprise business sector, which will make up 60% of the sales opportunity.

IBM (NYSE: IBM  ) rained on Microsoft's parade when electronics giant Panasonic (NYSE: PC  ) switched 100,000 employees from Microsoft Exchange and other collaboration platforms onto IBM's LotusLive cloud-based e-mail and collaboration management system. Eventually, 300,000 of Panasonic's workers, partners, and suppliers worldwide will follow suit in a gradual rollout.

The move allows Panasonic to build its IT infrastructure without swelling the size of its internal IT departments. Also, the fact high-tech Panasonic chose another firm to handle its cloud rollout speaks volumes about the complexity of the task.  Early entrants in the cloud-computing market include Microsoft, IBM, Cisco Systems (Nasdaq: CSCO  ) , Google (Nasdaq: GOOG  ) , and Amazon.com (Nasdaq: AMZN  ) , and these front-runners will most likely shape the market going forward.

Considering the gargantuan size of the market and its relative youth, you could make a lot of money by identifying the winners early on and investing accordingly. For giants like Microsoft and IBM, every move into the cloud also eats away at their old, less network-based products and services. In other words, cloud computing is a survival strategy for them.

Others, like Google and Amazon, are not facing the same dilemma; they will simply grow their businesses with every success amongst the billowing thunderheads above. That's why I see the companies that don't traditionally make a living from designing and selling hardware and software as the most promising plays on the cloud-computing trend. The others just need to do it in order to survive the revolution.

Do cloud-computing strategies make a difference to your own investing tactics? Drop a few pearls of wisdom in the comments box below.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Microsoft is a Motley Fool Inside Value selection, and Motley Fool Options has recommended a diagonal call on it. Google is a Motley Fool Rule Breakers recommendation. Amazon.com is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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