Friday, February 12, 2010
In the next few years, those IT guys are going to start getting what they deserve.
By now, your company's power-tripping "get out of my way and let me handle it" computer specialist has become a cliché. Everyone has an "IT guy" story. Saturday Night Live even created a parody of him... a caricature of the computer geek who has terrorized millions and millions of office workers for the past decade.
They control your computer. They control your Internet access. They control information. Many of them, handed a tiny bit of power for the first time in their lives, enjoy it immensely. My publisher's IT guys even have even given themselves the nickname "IT Overlords."
Enter "cloud computing." Enter the era of the laid-off IT guy.
You see, right now, most major corporations include enormous IT departments dedicated to storing and sharing mountains of data. They also own a pile of pricey, custom-developed software that only works on site. But as my colleague Rob Fannon explained here and here, maintaining a huge IT department is costly. And most corporations don't know the first thing about computer software and networking.
That's why cloud computing is catching on so fast. Eventually, companies will be able to sell off their server farms, send their files to someone who can manage them more efficiently... and fire their IT guys.
And that's just the first step. Once things get rolling, companies will be able to plug into the cloud for any IT need – hardware, software, web hosting, networking, etc. And costs will fall, since payment is based on usage not actual hardware. Finally, businesses will be able to focus on what to offer rather than technical details of how to offer the service.
Some of tech's biggest names are leading the cloud computing charge. For example, Google's internet-based word processor and spreadsheet program are fighting to replace the desktop version of Microsoft's Word and Excel. Saleforce.com's application allows businesses to centralize software while paying as they go with monthly license fees. VMware's "virtualization platform" allows data centers and servers to run more efficiently.
Leading IT research firm Gartner estimates cloud computing revenue will grow at an eye-popping 25% annual clip over the next few years. By 2013, the firm expects the industry to top $150 billion.
Fortunes can be made by catching this massive, long-term trend. However, you won't find any five or ten-baggers in the names above. At over $60 per share, Salesforce.com is trading at a stratospheric 100 times this year's estimated earnings. VMware is not much better. At 40 times earnings and seven times 2010 revenue, the stock is one bad quarter away from a bloodbath. And tech darling Google only gets a sliver of its revenue from cloud computing.
A better way to jump in today is through the more obscure service providers. These companies provide the physical servers, hosting space, and a means to communicate with them. Prominent names include Equinix (EQIX), Rackspace (RAX), and Terremark Worldwide (TMRK).
I expect to see massive consolidation in the industry over the next decade. The biggest tech names will likely gobble up the smaller players as a cheap way to gain access to the latest breakthroughs. Early shareholders will reap the windfall.
Gold miners rebound... after a 12% January slide, fund GDX has gained 8% this month.
Airlines climb... Southwest, UAL, and US Airways rally to 52-week highs.
Copper jumps 10% this week.