These days, the "cloud" seems to be on the tip of every company's tongue.
With the cloud services industry offering up a market that Goldman Sachs estimates will grow from $21 billion this year to $43 billion by 2018, investors ought to take note. But as big players such as Microsoft (MSFT - Get Report) , Amazon (AMZN - Get Report) , Alphabet's (GOOG - Get Report) (GOOGL - Get Report) Google, and IBM (IBM - Get Report) compete to offer cloud services, it can be tough to really grasp what exactly these companies are doing.
To better understand the complex industry, we spoke with Kim Forrest, VP and senior equity analyst at Fort Pitt Capital Group, an investment management company. Forrest, who previously worked as a software engineer, has a vast understanding of all things cloud and shared her thoughts on the industry in general, as well as how the major players are positioned.
TheStreet: First things first, what exactly does "the cloud" mean?
Kim Forrest: It's been nebulous for forever. People still don't really get what it is. I like to think of it as an off-premises way to store and facilitate the storage and retrieval of information.
TST: Why is the cloud services industry so hot right now?
Forrest: I think mobile computing has made it very important because that's how you can get your mobile users to get some information from you without letting them within the walls of your system. As people got more mobile, more stuff needed to be accessible as opposed to in your company's servers, which are difficult to get to from a phone. You needed to have this data securely available to mobile devices. That was a huge driver for the cloud.
Then there's the cheapness. Small to medium sized businesses may not want to have a data center, and if they can get a third party to do it for them it's more cost effective.
TST: Who are the winners in the space right now?
Forrest: Amazon is our dark horse because it came out of nowhere. Essentially what it did is rent out this extra capacity, and it's really good at that. Who it benefits are companies that don't have much of a data footprint to begin with. It's kind of this, "My data's up in the cloud, I don't have any data [on my company's premises], but just as long as I can get to it, I'm good."
Amazon was probably the first mover in this category and given the scale of their core business, they could demonstrate that they know how to provide uptime, speed, security, etc. It was a new field when Amazon snuck in. Microsoft didn't offer that service when AWS started. If you were an engineer and your organization had some servers but had some peak time crunches, those were the people that migrated to AWS naturally.
Companies that are willing to pay higher prices are those that already have data that want to expose certain amounts of it and let the cloud do that. That would be a hybrid sort of application. Microsoft and IBM are the winners there because they already are helping many businesses manage their on-premises data and they understand what the concerns of their customers are with respect to security.
TST: Should Amazon be concerned about increasing competition?
Forrest: Even techie human beings are on the lazy side, and they'll stick with what they know. If they're already on Amazon, they'll stay on Amazon. Unless Google comes along and says here's a really good deal.
Google has expertise in running data centers because that's what it does for itself. That is a sweet spot for them. We'll see if they can talk to businesses and their IT staff efficiently and create products that will easily allow people to do business on their platform.
TST: What about players like Microsoft and IBM that already have B2B businesses?
Forrest: I've always really liked the more business-focused companies, so i'm guessing that IBM and Microsoft will be able to talk to their current customers and get some new customers. My apprehension with both Google and Amazon is these are still small parts of their overall business. I am a stock picker, and I have to look at them as whole companies.
TST: Is there enough room in the industry for Amazon, Google, Microsoft, and IBM to all participate?
Forrest: I think there's a lot of data out there that needs to have a home. Good competition makes everybody stronger.
TST: It seems like companies are also moving to multi-cloud, where they store different data with multiple different cloud providers. Why is that a good idea?
Forrest: If one corner of the net goes down, wouldn't it be nice to still have business? It's more of a business continuity thing. And you're going to beat [the different providers] up on price. You're going to go, "Hey Google, AWS is going to give me a better deal; how about you match this?"