Investors today have far more options available than in the past. Among these options is the cloud. Nasdaq reported that last year revenues for cloud services grew by 60 percent. Furthermore, cloud computing is anticipated to continue growing at a robust rate over the course of the next five years. If you are considering investing in a technology-based company, there are certainly many advantages. By owning stock in a company offering cloud-based services, you will not only be able to follow the latest trends but also have the opportunity to make money from the explosive growth of this industry. Before getting involved in cloud computing investing, however, it is important to understand what is involved, what is driving the growth in this industry, and the best way to plan your cloud investments.

What Is Cloud Computing?

Before you consider investing in cloud computing, it is a good idea to have a basic understanding of exactly what it is. While many of us enjoy the ability to upload photos, documents, and videos to "the cloud" and then retrieve them at our convenience, the concept of cloud computing is somewhat abstract. The heart of cloud computing is fairly simple. Companies providing cloud services make it possible to store data and applications remotely, and then access those files via the Internet. (For a background on the Internet industry from which cloud computing has emerged, see article: The Industry Handbook: The Internet Industry.)

Cloud computing is primarily comprised of three services: infrastructure as a service (IaaS), software as a service (SaaS), and platform as a service (Paas). Software as a service is expected to experience the fastest growth, followed by infrastructure as a service. According to research conducted by Forrester, the cloud computing market is anticipated to grow from $58 billion in 2013 to more than $191 billion by the year 2020.

Software as a Service (SaaS)

Deployed online, SaaS involves the licensure of an application to customers. Licenses are typically provided through a pay-as-you-go model or on-demand. This rapidly growing market could provide an excellent investment opportunity, with Goldman Sachs reporting that SaaS software revenues are expected to reach $106 billion by next year.

Infrastructure as a Service (IaaS)

Infrastructure as a service involves a method for delivering everything from operating systems to servers and storage through IP-based connectivity as part of an on-demand service. Clients can avoid the need to purchase software or servers, and instead procure these resources in an outsourced on-demand service.

Platform as a Service (PaaS)

Of the three layers of cloud-based computing, PaaS is considered the most complex. While PaaS shares some similarities with SaaS, the primary difference is that instead of delivering software online, it is actually a platform for creating software that is delivered via the Internet. Forrester research indicates that PaaS solutions are expected to generate $44 billion in revenues by the year 2020.

What Is Driving Growth in Cloud Computing

The rise of cloud-based software has offered companies from all sectors a number of benefits, including the ability to use software from any device, either via a native app or a browser. As a result, users are able to carry over their files and settings to other devices in a completely seamless manner. Cloud computing is about far more than just accessing files on multiple devices, however. Thanks to cloud-computing services, users can check their email on any computer and even store files using services such as Dropbox and Google Drive. Cloud-computing services also make it possible for users to back up their music, files, and photos, ensuring that those files are immediately available in the event of a hard drive crash.

Driving the growth in the cloud industry is the cost savings associated with the ability to outsource the software and hardware necessary for tech services. According to Nasdaq, investments in key strategic areas such as big data analytics, enterprise mobile, security and cloud technology, is expected to increase to more than $40 million by 2018. With cloud-based services expected to increase exponentially in the future, there has never been a better time to invest, but it is important to make sure you do so cautiously. (See article: A Primer On Investing In The Tech Industry.)

Which Type of Cloud Computing Investment Is Right for You?

In choosing your cloud investment options, it is important to understand that there are many different elements involved in cloud computing, each of which presents the opportunity for investing as this industry continues to grow.

Centralized Data Centers

An increasing number of providers are now building centralized data centers. Among those companies are Rackspace and Amazon. Amazon seems to think that the future lies in the cloud. Microsoft's largest competitor, at least in terms of cloud computing, Amazon has been investing billions of dollars in expanding its data centers across the country. Reuters reports that Amazon plans to construct more data centers in an effort to make the Internet giant's cloud-computing branch the largest part of its business.

Storage

Rather than storing information on a hard drive or local storage device, cloud-based storage makes it possible to save files to a remote database. Vendors such as Dropbox, Apple, and Mozy are now facilitating cloud-based storage solutions, making it possible for users to move their files to the cloud for convenient and secure storage.

Security

Although cloud-based computing solutions have become increasingly popular, security remains a vital concern when accessing files online. More and more companies are now providing cloud-security solutions, including Websense and Qualys.

Applications

Among the most prolific services now being delivered via the cloud is Software as a Service. Leaders in the industry now providing SaaS include Keynote Systems, Salesforce, and Taleo.

Virtualization Technology

Cloud-based solutions often provide some type of desktop virtualization or application technology. Leading vendors providing virtualization technology include Citrix and VMware.

Choosing Cloud-Based Investments Wisely

In the process of selecting cloud-based investment opportunities, it is important to exercise caution and avoid companies that simply claim they are cloud-based. Take the time to review exactly what it is that the company offers and ensure that they are not simply using industry jargon in order to leverage market interest.

Research is vital to the success of cloud investments. When choosing any investment, it is always important to conduct due diligence. Given the rapid growth of cloud-based computer services, it is even more important to research the leading companies that are currently involved in the cloud. Consider whether there are any tech companies that are currently experimenting with new technology.

The Bottom Line

Poised for significant growth over the course of the next five years, cloud-based computing offers the opportunity for tremendous potential profit, but it is important to stay on top of industry changes and choose your investments wisely. (For related reading, see article: Top 10 Internet Stocks For 2015.)

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