There is a moment with all new innovations when they pass from the preserve of geeks and pioneering enthusiasts into the mainstream. Cloud computing seems to be at this tipping point.
It is suddenly dawning upon executives of businesses large and small, that maintaining their own computer hardware and paying for software programs that are rarely used, is not the most efficient way of going about things. Why not simply call up computing power and software programs when you need them and pay according to how much you use? This is what we do with electricity and gas, and computing can become just another service to be piped – not just into the home or office, but to any point on the globe where we can get an internet connection.
This move to a utility-style system for computing is a hugely exciting one for penny share investors. Gartner, the IT research specialist, estimates that the cloud computing market will grow from $56bn now to more than $146bn by 2014. And I’m keeping my eye on a number of very exciting penny stocks – one of which I’d like to tell you about today.
What exactly is cloud computing?
Charles Black, entrepreneur and founder of AIM-quoted Nasstar (LON:NASA), provides a valuable outline of this emerging new market. Cloud computing is a term loosely used to describe any service delivered over the internet. You may already use cloud computing yourself if you use the likes of Gmail or Facebook. Both allow individual users to use the storage and processing power supported by Google and Facebook’s massive server farms.
In fact, the defining characteristics of cloud computing are a usage-based payment and ‘multi-tenanted architecture’ – that is the idea of a physical computing infrastructure that is shared by multiple customers. More and more services, such as music, TV and radio are being delivered online and converging in the cloud and, along with music and entertainment, computing is just one such service that can be called up at will.
When it comes to business, there are a number of different strands to cloud computing. First there is ‘infrastructure as a service.’ Companies such as Rackspace, Amazon Web Services and Microsoft (through its Azure product) rent out servers, processing power and data storage. Certain hardware manufacturers such as Hewlett Packard are also ‘in the cloud’, offering services that are bundled up with their hardware.
Then there is ‘platform as a service’. This offers the customer the ability to host applications on a platform that can be bought on-demand. Then there is a term with which we are a little more familiar – ‘software as a service (SaaS).’
Here a software program is delivered online, hosted by the SaaS provider, rather than being installed on a local machine or server. And the customer pays on a usage basis, effectively renting the software program for small spells at a time.
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Cloud computing is sea change for small businesses
Aside from the cost-efficiency, there are several advantages for the customer. He does not have to buy the software licence, nor does he have to own any hardware other than some form of PC that can hook up to the internet. This saves cost, but it also saves headaches. Any small businessman will tell you that IT is his biggest worry, but software as a service means that somebody else has to worry about keeping the hardware running and the software up to date.
Bigger businesses have an extra reason to embrace SaaS. They will typically have their own IT department, obscure to the business leaders but costing plenty of money. Although no IT specialist is going to talk himself out of his own job, corporate bosses are now starting to realise that the whole IT side of the business can be handled remotely by a third party. And this is where Nasstar comes in.
The cloud stock that is liberating industry
Nasstar offers a desktop as a hosted service. What this means is that, rather than having a processing box under your desk and a suite of software programs installed on your computer, you need no more than a screen, a keyboard and an internet connection.
You just log on and all of your applications, including Microsoft Office Professional 2010, Microsoft Exchange Outlook 2010 emails, documents, company files and data will all be available on the desktop just as if you were sitting at your desk, with the familiar look and feel of Windows 7. Other software such as Sage accounts or CRM can be delivered to those who need it. This system and all the data will be delivered from one of Nasstar’s secure state-of-the-art data centres, managed around the clock by Nasstar’s team.
Nasstar describes its service as ‘liberating’ and, speaking as one who depends upon my computer and suffers intermittent IT crises, that adjective has an attractive ring. The service is sold through distribution partners, and customers already include Easyjet founder Stelios Haji-Ioannou, racing driver Martin Brundle and small companies such as Pinnacle Staffing and Alllied Healthcare.
This low profile business, valued at less than £5m on the stockmarket and run out of a small office in north London, has been described by Allenby Capital as “a market leader in an area which could prove to be the future direction of desktop computing”. Definitely one to watch.
But this is just one example of the business opportunities being thrown up by the rapid advances of technology.
The second internet boom is here
As I said last Tuesday, cloud computing is one of a number of massively exciting stories for small tech groups.
In fact, this is part of a bigger story here – an internet boom that is inspiring a level of excitement that’s not been seen since the early days of the dotcom boom.
Except this second dotcom boom is nothing like the first. Back in 2001, websites were unknown entities. People didn’t understand how to make online businesses work, and they lost millions. Today, solid commercial principles for raking in money from the internet have been clearly established.
Nasstar is a good example. It could provide a hugely cost-saving service for businesses. And in this months issue of Red Hot Penny Shares, I am looking to another very exciting internet group – one that I think has staggering commercial potential.
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• This article was first published in Tom Bulford’s twice-weekly small-cap investment email
The Penny Sleuth.