What is 'Cloud Computing?
'
Cloud computing is a method for delivering information technology (IT) services in which
resources are retrieved from the Internet through web-based tools and applications, as
opposed to a direct connection to a server. Rather than keeping files on a proprietary
hard drive or local storage device, cloud-based storage makes it possible to save them
to a remote database. As long as an electronic device has access to the web, it has
access to the data and the software programs to run it.
It's called cloud computing because the information being accessed is found in "the cloud"
and does not require a user to be in a specific place to gain access to it. This type of
system allows employees to work remotely. Companies providing cloud services enable
users to store files and applications on remote servers, and then access all the data via
the internet.
BREAKING DOWN 'Cloud Computing'
In its essence, cloud computing is the idea of taking all the heavy lifting involved in
crunching and processing data away from the device you carry around, or sit and work
at, and moving that work to huge computer clusters far away in cyberspace. The internet
becomes the cloud, and voilà – your data, work and applications are available from any
device with which you can connect to the internet, anywhere in the world.
Different Types of Cloud Computing
Cloud computing is not a single piece of technology, like a microchip or a cell phone.
Rather, it's a system, primarily comprised of three services: infrastructure as a service
(IaaS), software as a service (SaaS)+ and platform as a service (PaaS). SaaS is expected
to experience the fastest growth, followed by IaaS.
Software as a Service (SaaS): SaaS involves the licensure of a software application to
customers. Licenses are typically provided through a pay-as-you-go model or on-
demand. This rapidly growing market could provide an excellent investment opportunity.
Infrastructure as a Service (IaaS): Infrastructure as a service involves a method for
delivering everything from operating systems to servers and storage through IP-based
connectivity as part of an on-demand service. Clients can avoid the need to purchase
software or servers, and instead procure these resources in an outsourced, on-demand
service.
Platform as a Service (PaaS): Of the three layers of cloud-based computing, PaaS is
considered the most complex. PaaS shares some similarities with SaaS, the primary
difference being that instead of delivering software online, it is actually a platform for
creating software that is delivered via the internet.
Cloud Advantages
The rise of cloud-based software has offered companies from all sectors a number of
benefits, including the ability to use software from any device, either via a native app or a
browser. As a result, users are able to carry over their files and settings to other devices in
a completely seamless manner. Cloud computing is about far more than just accessing
files on multiple devices, however. Thanks to cloud-computing services, users can check
their email on any computer and even store files using services such as Dropbox and
Google Drive. Cloud-computing services also make it possible for users to back up their
music, files and photos, ensuring that those files are immediately available in the event
of a hard drive crash.
Cloud computing offers big businesses some serious cost-saving potential. Before the
cloud became a viable alternative, companies were required to purchase, construct and
maintain costly information management technology and infrastructure. Now, instead of
investing millions in huge server centers and intricate, global IT departments that require
constant upgrades, a firm can use "lite" versions of workstations with lightning fast internet
connections, and the workers will interact with the cloud online to create presentations,
spreadsheets and interact with company software.
Individuals find that when they upload photos, documents, and videos to the cloud and
then retrieve them at their convenience, it saves storage space on their desk tops or
laptops. Additionally, the cloud-like structure allows users to upgrade software more
quickly – because software companies can offer their products via the web rather than
through more traditional, tangible methods involving discs or flash drives. In 2013, Adobe
Systems announced all subsequent versions of Photoshop, as well as other components
of its Creative Suite, would only be available through an internet-based subscription. This
allows users to download new versions and fixes to their programs easily.
Disadvantages of Cloud Computing
With all of the speed, efficiencies and innovations of cloud computing come risks.
Initially, security was seen as a detractor from using the cloud, especially when it came
to sensitive medical records and financial information. While regulations are forcing cloud
computing services to shore up their security and compliance measures, it remains an
ongoing issue. Media headlines are constantly screaming about data breaches at this or
that company, in which sensitive information has made its way into the hands of malicious
hackers who may delete, manipulate or otherwise exploit the data (though, according to
some reports, most of the data breeches have been with on-site systems, not those in the
cloud). Encryption protects vital information, but if the encryption key is lost, the data
disappears.
Servers maintained by cloud computing companies can fall victim to a natural disasters,
internal bugs and power outages, too. And unfortunately, the geographical reach of cloud
computing cuts both ways: A blackout in California could paralyze users In New York; a
firm in Texas could lose its data if something causes its Maine-based provider to crash.
Ultimately, as with any new technology, there is a learning curve for employees and
managers. But with many individuals accessing and manipulating information through a
single portal, inadvertent mistakes can transfer across an entire system.
What Is Driving Growth in Cloud Computing?
One of the biggest impediments to cloud computing has been internet bandwidth: We
needed the internet to be a super fast, rushing river, moving just as fast wirelessly as it
does in the wired home or office. We're finally getting there with widespread broadband
adoptions, and with 3G and 4G wireless technology. We've also had to wait for internet
security standards and protocols to get solid enough to make CEOs feel safe exporting
huge data clusters out of their buildings and into someone else's hands.
But now that they have, and realize the savings potential associated with the ability to
outsource the software and hardware necessary for tech services, the pace at which
businesses embrace and utilize internet-based systems has quickened. According
to Nasdaq, investments in key strategic areas such as big data analytics, enterprise
mobile, security and cloud technology, is expected to increase to more than $40 million
by 2018.
The World of Business Cloud Computing
Businesses can employ cloud computing in different ways. Some users maintain all apps
and data on the cloud, while others use a hybrid model, keeping certain apps and data
on private servers and others on the cloud.
When it comes to providing services, the big players in the corporate computing sphere
include:
• Google Cloud
• Amazon Web Services
• Microsoft Azure
• IBM Bluemix
• Aliyun
Amazon Web Services (AWS) is 100% public and includes a pay-as-you-go, outsourced
model. Once you’re on the platform you can sign up for apps and additional services.
Google Cloud, which targets consumer banking and retail, is one of the latest entrants.
Microsoft Azure, which recently launched U.K. data centers, allows clients to keep some
data at their own sites.
Options for Investing in Cloud Computing
With cloud-based services expected to increase exponentially in the future, there has
never been a better time to invest, but it is important to do so cautiously. (See A Primer
On Investing In The Tech Industry.) In choosing cloud-based investment options,
remember that there are many different elements involved in the sector, each of which
presents an opportunity. Smaller companies that are focused solely on cloud computing
tend to be more expensive relative to how much money they're making today. As such,
they are a little riskier, but if cloud computing really takes hold – and all signs point toward
widespread adoption – these more focused plays could outperform larger companies just
dipping their toes in the water. But don't discount the potential positives that even a huge
company like IBM or Microsoft could see. As large corporations start to crunch the
numbers and see the potential savings of outsourcing parts of their IT divisions, some big
orders could be coming the way of the tech sector's giants.
Indeed, established computer companies, like U.S. software giant Oracle Corporation
(NYSE:ORCL), are moving away from traditional software and diving into such cloud
computing investments. Oracle picked up 3,600 customers and $690 million in its 2015
fourth-quarter revenue from its cloud-computing business. As five-star analyst Brian
White of Cantor Fitzgerald commented, Oracle’s transition to the cloud “appears to be
occurring much faster than the company anticipated.”
One caveat: Since cloud computing is so hot right now, many a firm is eager to appear
involved. Take the time to do due diligence to review exactly what it is that the company
offers, and ensure that they are not simply using industry jargon to leverage market
interest.
Hardware Plays
Companies like Google (Nasdaq:GOOG), IBM (NYSE:IBM), Intel (Nasdaq:INTC),
Microsoft (Nasdaq:MSFT), Cisco (Nasdaq:CSCO) and Hewlett-Packard (NYSE:HPQ)
are making huge investments in cloud computing. They are building out the seas of
servers that will make cloud computing possible. Some, like Google and Microsoft, have
their own applications to offer over the internet, while firms like IBM and HP are more
interested in providing the backbone to large corporate customers.
Plenty of companies are building centralized data centers, too. Some are pioneers in the
internet-provider industry, like Rackspace, which is owned by Apollo Global Management
(NYSE: APO); others come from other areas of the web world, like Amazon.com
(Nasdaq: AMZN). Though known to consumers as the internet superstore, Amazon is
also a market leader in the cloud computing sector. The company continues to invest
billions of dollars on the back end, expanding its AWS data centers across the country
and around the world, and is reportedly working on a new cloud service focused on a
branch of artificial intelligence called deep learning or machine learning (ML), which helps
train computers to recognize speech, images and objects.
There's also a realm of slightly smaller companies are working to upgrade the internet
and the corporate IT center for cloud computing. Akamai (Nasdaq:AKAM) is hard at work
making the internet's "pipes" more able to pump the huge amounts of data required to
make cloud computing a reality.
Software Plays
This trend won't just be about hardware. Software also has to be changed for cloud
computing to work. Instead of installing software on your computer or huge IT staffs
updating in-house server farms, software applications will be exclusively delivered and
maintained over the internet. As mentioned earlier, Software as a Service is rapidly
growing. Innovative companies like Salesforce.com (NYSE:CRM) and Concur
Technologies (Nasdaq:CNQR) have taken popular applications like expense reporting,
travel logistics, and contact management, and offered them as SaaS. While some of the
best-known brands have been acquired and taken private (RIP Keynote Systems), you
can sometimes invest in their parent company. Case in point: human resource
management software provider Taleo, now owned by Oracle.
Vendors who specialize in cloud-based file-sharing and storage are another option. Apple
(Nasdaq:AAPL) and Google are in the game, of course, as is Dropbox (currently private,
but with rumors of an IPO swirling as of 2017) and Mozy, which is owned by EMC
Corporation (NYSE: EMC).
Security remains a vital concern when accessing files online. More and more companies
are now providing cloud-security solutions, including Forcepoint (co-owned by Raytheon
(NYSE: RTN) and Qualys (NASDAQ: QYLS).
Cloud-based solutions often provide some type of desktop virtualization or application
technology. Leading vendors providing virtualization technology include Citrix
(Nasdaq: CTXS) and VMware (NYSE:VMW).
You could even consider mobile internet devices as a good play on this trend. As devices
like Research in Motion's (Nasdaq:RIMM) Blackberries or Samsung Electronics'
(OTHEROTC: SSNFL) Galaxies offer more applications, they will make their way into
many more hands this decade.
