These Companies Are Getting Creative in the Cloud
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Cloud computing is becoming increasingly popular, allowing data and even software to be accessible from anywhere in the world with Internet access. While this is useful for data synchronization and on-demand services such as gaming, where it really shines is the implementation of the software-as-a-service (SaaS) business model.
Companies such as Microsoft (NASDAQ: MSFT) and Adobe Systems (NASDAQ: ADBE) have really taken to the SaaS model, with both releasing cloud-based versions of their most popular software products in the past year. Though both received some backlash over their shift to services, subscription rates for the respective products seem encouraging.
Microsoft Office 365
With the release of Microsoft Office 2013, the company unveiled a new version of its "Office 365" subscription service: Office 365 Home Premium. While Office 365 had previously been targeted at businesses and enterprise customers, the Home Premium version contained the entire Office suite along with added features such as Skype minutes and enlarged SkyDrive storage.
The adoption rate of Office 365 grew five times between April 2012 and April 2013, likely fueled heavily by the addition of the consumer-level subscription package. The service makes up 25% of the unit volume for the current generation of Office, with the other 75% going to Office 2013. The company expects to grow its Office 365 adoption rate by 40% in the 2013 fiscal year, though some analysts question whether this is a realistic expectation given how this early on there are still a number of users who don't trust the shift from perpetual licenses to a service model.
Adobe Creative Cloud
Adobe's Creative Cloud service provides all of the benefits of its Creative Suite products for $50 per month. Unlike Microsoft, however, Adobe announced that it was no longer releasing new perpetual license products and that all future product updates would come through the Creative Cloud. This announcement upset a number of Creative Suite 6 owners, with a CNET/Jefferies survey indicating that 76% of users questioned said that they would retain their current licenses and shun Creative Cloud.
The survey respondents do not seem to correlate with the actual population, however, as Adobe recently reported that it already has over 700,000 subscribers to the service. The impressive figure is likely due in part to 40% to 60% off specials that have been running through the past few months, but the numbers were still 100,000 subscribers higher than many analysts expected. The company hopes to add an additional 525,000 subscribers by the end of the year as well, bringing the anticipated total subscribers to 1.25 million.
Amazon Web Services
While Amazon.com (NASDAQ: AMZN) doesn't have a specific product that it has converted to a cloud-based service, the company does have a significant interest in cloud computing itself. Amazon Web Services is one of the largest providers of cloud infrastructure and hosting in the world, allowing businesses to host music, apps, and anything else they may need to base in the cloud.
Amazon Web Services is growing, too; earning approximately $650 million in 2010, the cloud service is expected to bring in $3.8 billion in 2013, and some projections have it reaching the $20 billion mark as early as 2018. This isn't surprising, however, since the company offers a free hosting tier to let users get accustomed to the service and then upgrade to a paid tier once their hosted products reach certain usage metrics.
As the business world continues to shift from physical to digital products when possible, the continued shift of products from perpetual licenses to cloud-based SaaS products is largely inevitable. Some of these services will face competition; an example of this would be Office 365 contending against Google's Google Docs or open-source projects such as Libre Office. Other services won't face quite as much competition due to a relatively small number of competitors as is the case with Creative Cloud (since there are few if any competing products that offer all of the components of Creative Cloud in a single suite.)
Cloud-based services could become major growth drivers for the companies that develop them, however, and for the companies that host them. While there is a major focus in investing communities lately on companies that are expanding into emerging markets, attention should also be paid to those companies that are taking large steps toward leveraging the cloud to their own benefit.
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John Casteele owns shares of Microsoft. The Motley Fool recommends Adobe Systems and Amazon.com. The Motley Fool owns shares of Amazon.com and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!