Cloud Computing Is a War, So Invest in the Arms Dealers

NEW YORK (TheStreet) -- As an investor, how do you take advantage of the massive and inevitable disruption that cloud computing is causing across the world of business? Simple: You invest in the "arms dealers" in the space, the companies providing the underlying infrastructure and technology.

These companies include the likes of Amazon (AMZN), VMware (VMW), Citrix Systems (CTXS), and they are poised to grow and profit no matter who wins the battles among other kinds of cloud-computing companies.

The cloud model of technology solutions has been growing at an astonishing pace, and projections show even faster growth.

report last year by Market Research Media estimated the global cloud-computing market would grow at a 30% compound annual growth rate over five years, to reach $270 billion in 2020.

Cloud computing is compelling for both software vendors and their customers. In the old model, every customer essentially had their own copy of the software product the vendor built. A vendor may have tens of thousands or even millions of customers. Whenever there was a serious bug in the software, the vendor had to make sure all the customers individually had the latest software.

If you had 10,000 customers, then you had 10,000 separate installs and updates. With the cloud model, there is only one copy of the software. Vendors have to fix a bug only once, and all 10,000 customers immediately reap the benefits.

Vendors would be foolish to continue with the old model, and they are switching at such a rapid pace that installs of software using the old model have started dropping.

The Sand Hill Group found that more than 25% of software companies didn't plan to deploy software in an on-premises model at all in 2015.

Cloud computing also offers a number of significant benefits to customers. Customers have to pay less upfront as a capital expense and instead pay it over time on a subscription basis. It is essentially leasing instead of buying, and it's a lot more appealing for the customers when they start thinking about their cash flow. There are many other benefits as well.

Cloud computing has started to get subdivided by the type of service being provided and where in the value chain it falls.

Subcategories include software-as-a-service, platform-as-a-service and infrastructure-as-a-service. PaaS is predicted to have some of the largest growth. PaaS is becoming the new technology layer on which new applications will be built and presents the largest challenge so far to Microsoft's (MSFT) Windows operating system. PaaS can completely bypass the need for an operating system and provide a lot more than an operating system can.

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