What Exactly is ‘Cloud Computing’?

Every individual is talking about the new buzzword, ‘Cloud Computing’, but I wonder if anyone understands it. If you are one of them, fret not, because you will be uttering these words by the end of this post. Let’s have a look at it from the investor’s point of view.

Usually, maintenance cost or overheads are quite huge in IT companies, or that’s what every manager says. However, many harsh measures are taken to keep this cost under control. Some companies prefer rightsizing the number of employees, some buy the software instead of developing them, and few outsource the whole spectrum of operations. Due to these measures, or may be some other reasons, these companies have continued to grow, mainly for two reasons: More work is done by them every year; and managers increase the cost, a counterproductive result.

However, this cloud computing, although saves lots of money and increase the overall productivity, may prove to be quite expensive, if not used appropriately.

Companies under ‘Cloud Computing” can be lumped in three categories

1. Internal Cloud
   Internal computing infrastructure is organized, today, with server farms, which comprise of thousands of individual servers. Servers are owned by the company, even if the management is outsourced. This internal cloud helps the company to maintain its data and keeps from leaking. Such farms were first used by Google (GOOG), Yahoo (YHOO), Ebay (EBAY), and Amazon (AMZN).However, investors should switch their focus on companies that provide software and hardware solutions to develop and maintain these internal clouds. Few major players include HP (HPQ), Cisco (CSCO), Dell (DELL), EMC (EMC), and IBM (IBM) in hardware; and Microsoft (MSFT), Oracle (ORCL), and VmWare (VMW) in software.
2. External Cloud
   Instead of maintaining such a big cloud, few companies finds it beneficial to outsource it. Many companies provide such solutions. However, companies like Google and Amazon have a radical advantage over other minor players as they have better software & hardware combinations and they are quite good at building relationships. These companies provide the requisite machinery to their clients along with the operating system, which is usually chosen by the client.For investors, favorites include HP, Dell, Yahoo, Oracle, Ebay, and IBM.
3. Software Services
   I really don’t know why these companies are known as cloud computing. It doesn’t fit any of the above categories either. These companies provide applications to businesses through web browsers. It is possible that these applications, may be then used to support internal or external clouds, but it’s a different model all together.Here, companies providing software services don’t really need to build or maintain an IT team to run the application. Current leaders in this section are Rightnow Technologies (RNOW), Oracle (ORCL), and Salesforce.com (CRM).

   Salesforce is definitely a leader in this business. May be, according to sources, Microsoft might consider entering this business through internal developments or acquisitions. But, as of now, there aren’t any moves indicating such decisions.

Among all the categories of ‘cloud computing’, companies providing software services seem to be a clever investment. Internal cloud too is a decent one; however, I don’t see any reason why one should invest in external clouds. If none of these companies interest you, you can at least use the buzzword.