As Cloud Computing Ramps Up, Where Are the Opportunities?

As I noted last week, enterprises are beginning to embrace the concept of cloud computing, in which applications and computing power are moved from individual desktops to a shared network. Over the next few years, this shift will account for a greater share of IT spending and a huge part of its growth. This week, we'll take a look at how that growth will evolve and at a few companies that stand to benefit.

A study by IDC shows that global spending on cloud computing is growing a rate of 27% a year, or nearly four times as fast as the overall information technology market. Total spending on cloud computing -- which includes business applications, servers, storage, application development and deployment and infrastructure software -- will more than double between 2008 and 2012, according to IDC. It was $16.23 billion, or 4%, of the $383 global IT market in 2008.

Spending on the cloud is expected to rise to $42.27 billion, or 9% of the $493.71 billion IT market in 2012.
Cloud computing is becoming more important to every element in the tech food chain, from suppliers of infrastructure and applications to the clients who buy it. The growing importance is even more dramatic when one considers just how much of the market's growth is being channeled into the construction of the cloud. The IT market is expected to grow from $462 billion in 2011 to $493 billion in 2012. The cloud is expected to account for 25% of that $31 billion in new spending.

"The implication for IT suppliers is clear. During the next several years, IT suppliers must position themselves as leaders in IT cloud services, or forfeit an ever-expanding portion of the industry's growth," Frank Gens of IDC concludes.

The Hot Spots

Where, precisely, will this growth occur? The biggest part of the market is business applications, which accounts for more than half of all spending on the cloud. About 52% of the cloud market will be focused on business applications by 2012. That's down a bit from 57% in 2008, but still a huge opportunity for big IT companies.

That's one reason why Microsoft (MSFT) was upgraded last week by brokerages such as FBR Capital Markets (FBCM). Software analyst David Hilal raised his rating on the company to outperform and put a price target of $32 on the company, up by $1. (The stock closed Friday at $25.80.) The software giant is moving embracing the concept of cloud computing, and new versions of its Office productivity suite have fully developed Web offerings, matching the functionality of its traditional desktop product. Goldman Sachs (GS) rated Microsoft a buy earlier this year, noting the strength of its enterprise business.

SAP (SAP), bolstered by its acquisition of Sybase, is rushing to catch up in the cloud, where it had fallen behind Microsoft and Oracle (ORCL). But the deal should help it catch up.

The greatest opportunity may occur in the cloud server and storage markets. The server market is expected to hit 8% of total spending by 2012, up from 5% in 2008. The storage market is expected to account for 13% of the market, up from 5%, during the same time frame. Just as users of Google Docs -- and, increasingly, Microsoft Office -- can store their documents online, instead of on their desktop, enterprise customers are beginning to shift some of their storage to the cloud as well.

As in many aspects of the tech market -- from social networking to the iPhone -- consumers are leading the way for the enterprise. That is particularly true of the cloud, which has driven popular consumer applications for the last few years.