By Tom Taulli
Salesforce.com builds software to help companies improve the results of their sales teams. Though much of the gains to be had in the stock have already been made, there are other companies in the sector growing at a rapid clip.
To understand cloud computing, it's important to take a look at the traditional approach to business software. Known as on-premise software, this involves installing complex applications on a company's servers. This means there are large expenses for information-technology systems as well as technical-support staff and outside consultants.On-premise software is far from cheap. A company must pay an upfront licensing fee and then ongoing maintenance fees. So if a company implements an enterprise resource planning (ERP) system -- which handles things like the general ledger, inventory, payroll and so on -- the costs can easily amount to several million dollars. But cloud computing takes a much different approach. (Read This Year's Best Stocks You've Never Heard Of.) First, the software is typically installed on the software provider's own servers. The customer simply accesses the software via the Internet. The result is that it is much easier to update the application and there is also no need to invest huge amounts of money on an IT infrastructure. Even the business model is different. For example, cloud-computing providers charge an ongoing subscription fee, which is usually based on the number of users. For the most part, this is cheaper than the licensing/maintenance approach. All in all, cloud computing looks like a disruptive technology, and the market opportunity is enormous. Consider that International Data Corp. (IDC) pegs the cloud-computing market at $16 billion this year and forecasts it will reach $56 billion by 2014. So what are some top cloud-computing operators that are attractive investment opportunities? Here's a look at three: 1. SuccessFactors (SFSF) develops business-execution software. That is, it helps communicate key strategies throughout an organization and measure the ongoing results. Since 2008, revenue has grown about 27% each year. For the current year, SuccessFactors is expected to post revenue of $198 million to $200 million and has actually raised guidance twice. More than half of new revenue comes from existing customers, which shows that the software is providing a strong value proposition. SuccessFactors also continues to invest heavily in its technology and has purchased several companies. The company estimates its market opportunity at a whopping $36 billion. It helps that the company's software can scale from small businesses to global enterprises.
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