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:
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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.
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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:
- My best ideas will always be under assault from something newer.
- 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.
