When network engineers draw up a new service, the big bad Internet shows up as a nebulous cloud on their drawings. The information superhighway is also known as the "cloud" in techie lingo. And so it is that software and services hosted somewhere out there, beyond the data center, have picked up the darling term "cloud computing."
The cloud is definitely a hot ticket right now, with everybody from IBM
Big brother Cloud
For starters, there are a few different flavors of cloud computing. Some providers, including Amazon and Rackspace Hosting
This platform lets the customer's tech department focus on building and running applications, as the responsibility for keeping the (virtual!) hardware running falls to somebody else. These cloud providers tend to have massive hardware resources and network bandwidth – for example, telecom giant Verizon
Little brother Cloud
Whether you know it or not, you've probably been using cloud computing products for years. Every time you hit up Google
Rule Breakers recommendation salesforce.com
How the cloud changes businesses
Cloud computing has created new low-capital business models like salesforce.com's centralized data management. It has spawned new user expectations; once you get used to the convenience of having every business tool at your fingertips, there's really no going back. The cloud even fuels entire new industries, like the whole-platform hosting we talked about earlier.
There's still a place for corporate data centers, of course. Nearly every enterprise will need some specialized hardware, ultra-high-performance computing, or paranoia-blasting security features that the cloud cannot offer -- yet.
But most of them also have plenty of functions that could be shoved out into the cloud today. Hosting the company's home page springs to mind, or running the kind of SaaS applications you saw salesforce doing earlier. And with super-cool tools like Amazon MapReduce, built on parallel-computing technology invented by Google and refined by Yahoo!
The investing implications
The business benefits of cloud computing include simpler IT management, less system support staffing, high-speed connectivity, and a computing environment with 24/7 tech support and contract-back service level agreements. You should look at how the companies in your portfolio use the cloud, because it's starting to look irresponsible not to take advantage of these great tools.
As for the service providers, Amazon built an early lead in the platform hosting game. Rackspace offers low prices, and Verizon could logically look for an advantage in faster network pipes -- everybody has a part to play -- but I'd call Amazon the horse to beat right now. Keep up the innovation for a couple more years, and the Elastic Computing Cloud (EC2) hosting could become a reportable Amazon division with meaningful revenue and profits.
Keep your head in the clouds, Fool. That's where the IT industry is heading over the next few years.
Further cloudy Foolishness:
salesforce.com, Google, and Rackspace Hosting are Motley Fool Rule Breakers recommendations. Amazon.com is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. He does have an account with EC2. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.