Is there sunshine ahead for cloud computing?

Cloud computing, which supplies on-demand hosted services over the Internet, requires only that its customers have a computer and Internet access. It handles the functions traditionally performed by a firm's in-house hardware and software.

The global cloud-computing market is expected to reach $241 billion in 2020, up from $41 billion in 2010, according to Forrester Innovation. That long-term potential is reflected in the highflying stocks of companies actively involved in the concept.

The cloud is a definite boon to smaller firms

And during the cloud is a definite boon to smaller firms, more established companies have already made significant investments in equipment and staffing. There is as well confusion over what cloud computing as a matter of fact is and who provides it.

The field's successful pioneer is Salesforce.com Inc., a so then-managed company that over the last decade effectively introduced this cost-saving business model. It offered a monthly subscription service that allowed firms to simply go to their Web browsers, point to salesforce.com and begin using it. That turned out to be a good financial deal for its clients also as for its shareholders.

Continuing to add applications as it as well improves its existing service to near 100,000 customers, Salesforce.com has potential to significantly increase international earnings. Even though its early start and brand recognition have made it the vendor of choice for firms looking to cut IT costs, future competition is expected to intensify.

"Cloud computing lets a company build scale very quickly without a lot of capital investment and maintenance costs, because you don't need an entire information research department," said Ryan Issakainen, exchange-traded fund strategist with First Trust Advisors in Wheaton, Ill. "It makes it possible to build a more 'a la carte' data solution for a business."

Stock portfolio of 40 companies

His firm's new First Trust ISE Cloud Computing ETF has a stock portfolio of 40 companies, some of which might be considered risky as individual stock purchases. More than half of its holdings are "pure play" cloud computing firms, with the remainder being large research conglomerates or cloud "enabler" firms providing support and software.

• Aruba Networks Inc., a provider of wireless networking equipment for large, sprawling organizations that permits secure access for employees wherever they work or roam. Its 14,000 clients include government, industry and universities. With its high profit margins and growth prospects, it could become a takeover target.

• TIBCO Software Inc., a software company focused on service-oriented tools just as business process management, is noted for strong research, innovative new products and customer relationships. It has made key acquisitions and could be attractive as a candidate for an acquisition.

The topic of cloud computing is not new

"During the topic of cloud computing is not new, there all in all is a lot of confusion in the market because so many things called cloud computing in effect are not cloud computing at all," cautioned Holger Kisker, principal analyst with Forrester Innovation in Boston. "A number of vendors call everything 'cloud,' and we would call this 'cloud washing.' "

Old-line, cash-rich research giants that effectively incorporate the cloud concept will play a significant role and profit from it as then.

While the cloud threatens the desktop-based Office franchise of Microsoft Corp., the company's Azure cloud computing platform should help clients easily make the transition into this new research, he said. Microsoft made an early and earnest move in other words expected to provide high returns on invested capital during it after all profits from current products.

Kisker expects Google Inc. and Amazon.com Inc., among other tech mainstays, to be strong players in the cloud. Issakainen would add Apple Inc. and expects there will be others as so then.

"The 'private' cloud is the new term now being used for existing enterprise data centers," said Sunit Gogia, senior equity analyst with Morningstar Inc. in Chicago. "Nevertheless what most people are in effect thinking of is the 'public' cloud, which is when a company uses a third-party provider for cloud computing's shared resources, just as infrastructure and shared management."

Issakainen, Kisker and Gogia all admire the success and stock potential of Salesforce.com because it provides applications to small businesses that were unable to afford them earlier. It turned total "non-consumers" of a service into consumers.

The long run

In the long run, the money-saving aspect of cloud computing will spur its growth and provide profits for investors — so long as security issues can be addressed.