Internet 2.0: how to cash in on cloud computing
As the world becomes ever more interconnected, the storage capacity and processing power of online infrastructure are rising exponentially, heralding a new digital age, says Stephen Connolly
Clouds on the horizon are not welcomed by investors, but they should be if they are the computing kind: cloud computing is a high-growth sector essential to our everexpanding digital futures. Investors want to identify and profit from the life-changing megatrends that will dominate our futures. Cloud computing would rank highly on any such list.
But even though the cloud has been part of our daily lives for years, if not decades, it’s not widely recognised despite its compelling long-term prospects. This is all the more surprising when you define it at the most basic level: the cloud is the internet.
When we use the internet, we make a request on our computer for information – say for a weather forecast from the BBC – that is delivered directly to us almost immediately. It might seem like magic, but what really happens, of course, is that a vast range of computers all over the world are working together to store, route and transmit data such as webpages whenever we put in our requests. When people talk of the cloud, they mean this huge collective computing power.
As our digital needs expand exponentially, use of this virtual supercomputer for anything from data storage to processing power keeps pace. The cloud has developed well beyond the early days of the internet and the delivery of webpages. Films, photos, banking records and social media data are all stored, accessed and processed via the cloud.
Indeed, this shift is why the cloud is sometimes referred to as Internet 2.0. And with all of our devices (think computers, phones or even watches) connected to that cloud, we can access and share whatever we need wherever we are.
It was in 1997 that the late Steve Jobs, co-founder of Apple, described having non-connected computers as “byzantine”. This evidently informed the direction he and Apple were to take. As we know, Apple grew largely by joining up devices and making accessible the things people tend to keep close, such as pictures and music.
Apple arguably did most to bring about the acceptance of the smartphone, which is really a mobile, cloud-connected computer in your hand or pocket that you can make phone calls with. And iCloud was a relatively early Apple entry into cloud storage for individuals and small businesses.
Today all manner of gadgets and sensors, not just desktop computers and phones, are being joined up to provide alerts and information. These range from leak sensors at an oil refinery to movement detection cameras on our front doors.
“In 1997 Apple’s co-founder Steve Jobs described having nonconnected computers as ‘byzantine’”
Big Brother is watching you
Connectivity through the cloud is a fulfilment of what pioneers saw as the early promise of the internet: homes with everything from the heating to the fridge loaded with sensors tracking how you live; gadgets knowing your travel routines, daily itineraries and interactions; and applications tracking your spending and entertainment habits.
The idea is that technology makes your life easier: the house can turn on the heating knowing you’ve just
started your drive home; the fridge can warn you to stop for milk on the way; and the car can then tell you when you are within 500 yards of a Tesco and give you the directions avoiding traffic.
Some will sense a “Big Brother” element to technology knowing everything about us. On the one hand, it’s very convenient when the cloud backs up all your photos that day or shows you a film the moment you ask for it.
But what about the bank’s computer, which makes decisions on loan applications but also knows that you spend over £50 every night in a pub straight after work and then have a curry. Or the car or health insurer that can access similar information?
Much of this is some way off and governments are engaged in protecting personal data. But it’s hard to dispute the direction in which technology is heading. Alphabet’s former executive chairman Eric Schmidt put it well a few years ago when he said: “The internet will disappear. There will be so many IP addresses, so many devices, sensors, things that you are wearing, things that you are interacting with, that you won’t even sense it. It will be part of your presence all the time.”
This thinking was echoed by another leading tech player, Satya Nadella, the highly respected CEO of Microsoft, who also sees computing and technology embedded everywhere, shaping people’s lives at work, home or out socialising. He said: “It’s amazing to think of a world as a computer.”
Businesses all over the globe, whether large or small, cannot afford to ignore these trends, which is why the cloud is big business and attractive for investors. It is facilitating more and more interactions between people and their devices, accommodating the exploding amounts of associated raw data and providing the huge computing power needed to process and analyse it meaningfully. As such, the cloud is central to realising the potential of digital trends such as Big Data, artificial intelligence (AI), machine learning and algorithmic processing.
“The bank’s computer will know if you spend more than £50 in the pub every night”
Rent, don’t buy
Major brands including Netflix, Skype, WhatsApp, Microsoft Office, Adobe, Google Docs, Facebook and LinkedIn use the cloud to provide their products and interact with customers. But whatever the company or the organisation, the case for moving to the cloud is compelling on multiple fronts.
When businesses use the cloud rather than maintaining – or even building from scratch – their own existing information technology infrastructure, they save money, become more efficient and are better placed to compete. Any manager would need powerful counterarguments to reject the cloud’s merits.
As soon as businesses migrate to the cloud, spending on software, all the necessary hardware and maintenance is replaced with a subscription covering its use of the cloud. The business still has its
infrastructure but it rents it from a cloud provider, which then maintains it and keeps it secure with the latest technology. Put simply, it’s a bit like a company selling its office building and then renting one instead. All the technology investment, maintenance and expansion costs have gone, freeing up capital for the business, and instead it pays rent to a landlord who takes on all the structural responsibility, maintenance and security.
Another considerable benefit in adopting the cloud is that as companies grow they can simply scale up their computing requirements almost at the flick of a switch by paying higher subscriptions for more cloud space. Or, if trading turns down, they can cut back fast, which is hard to do if you have your own infrastructure because you can’t suddenly escape the fixed costs – at least not if you want to stay operational.
Furthermore, the big cloud developers have the deep pockets to spend more on cutting-edge security measures. This includes the obvious data threats such as a cyberattack, but the cloud is also built to withstand natural disasters and hardware breakdowns. The providers distribute their hardware all over the world so they would not all be affected by one physical or regional event, and they provide security for their sites.
In almost all cases, the significant commitment to security makes the cloud a safer option than an in-house, self-managed structure. Given the financial and reputational costs of downtime and the burden of management having to stay up-to-date with the latest security threats and responses, the cloud is surely the more attractive option.
Who will benefit most?
What’s more, of the many lessons we have to learn from the Covid lockdowns, one is that businesses must be able to continue even if their offices are unavailable for any reason. Having a disaster recovery site in another location if your main office fails isn’t good enough.
Staff need to have devices that let them communicate with each other and access all their data whether from their kitchen or at their desk. It’s central to cloud-based computing that employees can work together real-time from anywhere in the world.
And while it’s an ongoing argument, staff working at home for some of the week could certainly reduce office space costs and, it is argued, boost productivity. It follows that investors, too, need to be part of the cloud.
It’s where businesses are heading, and providing them with cloud functionality is a high-growth industry. From the big players leading the building of the cloud such as Amazon and Microsoft, to the smaller ones offering peripheral services such as cybersecurity, there are many ways to profit from the cloud.
And it is still a long-term theme. Getting businesses into the cloud isn’t an overnight process so there are many years of rising sales ahead. Analysts at the global technology research group Gartner predict that spending on the cloud will hit nearly $600bn this year, up by more than 20% on 2022.
Other forecasts estimate annual growth of between 15%-20% a year in the sector between now and the end of the decade, well ahead of overall economic growth and expected broad stockmarket rates of return.
“Spending on the cloud is expected to reach $600bn in 2023, more than 20% up on last year”