3 Ways Your Investment's Cash Flows Into the Cloud

Danny is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Sometimes a short glance at the clouds can tell you whether it's a good idea to wear shorts and sandals.  You don't need a sixth sense to judge those dark formations spreading across the landscape at breakneck speeds; it's obvious that an umbrella and coat are in order.

Why, then, is there always that one fellow or damsel that finds themselves drenched and unprepared for the weather?

Let's keep you from being similarly uninformed.  Take a short glance at the cloud technology that's forming over your investments.  Are you prepared for the coming storm?

What is "The Cloud"?

Don't mistake practical technology with some mysterious, unexplainable phenomenon.  "The Cloud" just means "on the internet."   No matter what type of data you hear a product keeps "on the cloud," there's nothing magical about retrieving data stored on a distant computer -- whether it's your company presentations, phone numbers, or applications.

Rain gets you wet, the internet -- pardon me, "the cloud" -- gets you information through an internet connection, and the world keeps spinnin'.

Adapt Or Die

Just like a warehouse might fall into chaos without inventory management, a company without cloud data might not function as optimally as those using the cloud.  Just like there are management programs and software that help manage inventory, there are providers of storage on the cloud.

Let's see how different groups must push cash into those providers or cook up their own alternative, with Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), and Rackspace Hosting (NYSE: RAX) positioning themselves to soak up that business.

1. Small and Nonexistent Companies Must Not Sink Below The Cloud

There are corporations out there that don't exist yet, developers making side-projects, or fledgling startups taking first steps.  This hits close to home because I am among them with my own project (sorry, folks, not selling stock yet).  Especially in Los Angeles, there are organizations that take entrepreneurs like me and accelerate our company's growth by providing funding, mentorship, and other resources.  In exchange, they get a small percentage of equity.

This is where I first witnessed keen providers capitalizing on the startup demographic.

These "accelerators" are striking up partnerships with the likes of Amazon for Amazon Web Services, Google for their Google App Engine, and Rackspace Hosting for their equivalent service.  Whatever a startup's proprietary ideas may be, the prospect of storing all our users' data on such secure, pre-existing solutions sounds better than risky, untested implementations we'd brew up ourselves.  If an accelerator offered these, it means my engineer spends less time reinventing the wheel: I'll take it and Amazon, Google, or Rackspace would take our money.

Those services allow us the "cloud storage" claims that bigger companies make.  Speaking of which...

2. Larger Tech Companies Are Learning To Ride The Cloud

Among my competition is Avid Technology, Inc. (NASDAQ: AVID).  They have Sibelius, a product that is bought and installed on a user's computer.  Recently, they had to close the office that was working on Sibelius.

Though this company is far more established than my little project, you might now recognize my competitive advantage: I'm online.  I can store users' files "on the cloud" so they can work from computers, tablets, and smartphones other than the computer on which Avid's product was installed.  Another leading product in this space is Finale by MakeMusic, Inc. (NASDAQ: MMUS).  Again we see the "installed" model for software, which could mean a similar fate unless they quickly update to use some form of networked connectivity.

And update they shall!  It's no coincidence that job postings for MakeMusic describe cross-platform, "web-based and hybrid" requirements in their engineering postings.  They've learned Avid's lesson just as well as Avid has, judging from no less than 36 job search results when searching for web-related positions within Avid's own careers.

The message is clear when looking at these established companies: without the cloud, software becomes obsolete.

That cloudy weather isn't gloom and doom for the providers of cloud computing.  Avid and MakeMusic are examples of established companies that will pay providers like Google, Amazon, and Rackspace for their cloud needs -- just like startups have to.

​3. Smart Non-Tech Companies Put Their Heads in the Clouds

Take a look at the websites that Wal-Mart, Target, Best Buy, and other large retailers run.  Search for something.  You can now probably guess those results have not been taken from building-based inventory systems.  Every transaction online involves user information -- credit cards, addresses, phone numbers -- stored on the internet.  Major venues retrieve brick & mortar information such as tickets and show times from somewhere on the cloud.

This is no longer a convenience.  The standard is raised even if they're not tech company, and it's the same type of players -- Amazon, Google, Rackspace -- that will be waiting to capitalize on that update.

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dfavela owns shares of Google. The Motley Fool owns shares of Amazon.com and Google. Motley Fool newsletter services recommend Amazon.com, Google, and Rackspace Hosting. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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