Why Investors Should Keep Their Eyes on the Cloud

Analysts say cloud computing will revolutionize the way we use technology.

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With the launch of Apple's iCloud system in October, many consumers got their first clear glimpse of the future of computing. Giving users the ability to store their music, photos, and data online and call it up on any of their computers or mobile devices, iCloud has all the benefits of a hard drive without any of the bulk. In recent years, more and more businesses have been embracing so-called cloud computing, and many market analysts and technophiles forecast that the concept will revolutionize the way companies and consumers use technology (and make a lot of money for some firms and investors along the way).

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In essence, cloud computing means doing business over the Web rather than keeping it on location. That might mean that one company pays another for use of its servers, or to store digital information at an off-site data center, or to control and maintain its software instead of having the expense of an in-house IT department. The idea is that computing "be made available to people anywhere, anytime, like electricity or utilities," says Venky Ganesan, managing director of Globespan Capital Partners, a venture capital firm that invests in a range of technologies.

Google's shareable Google Docs is one early example of a cloud service useful to consumers, for instance. Some less familiar companies that have made a name for themselves in this market: Citrix Systems, which gives access to computer systems from a remote location or a mobile device, and Salesforce.com, which develops customizable programs businesses can use to automate sales to their customers.

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Some companies have been resistant to storing their valuable data off-site; others see danger in effectively outsourcing their IT departments. But the cloud will become a growing part of company business models, predicts Ken Allen, manager of the T. Rowe Price Science and Technology Fund.

IBM offers software and consulting services to help businesses move in this direction, for example. Amazon has introduced a number of services for businesses, including programs for databasing, messaging, and tracking Web traffic, as well as its consumer-oriented Cloud Drive, which lets people store data online for a fee (5 giga¬bytes of storage are free). For now, buying shares of a few well-known tech companies like these "that you would want to own anyway" might be the way to benefit from the trend without taking on too much risk, says Doug Kinsey, a financial adviser based in Oakwood, Ohio. There is money to be made in specialized tech start-ups, experts say, but the challenge is choosing which ones will find long-term success rather than flame out. "It's difficult to really pick who the winners will be," says Ryan Issakainen, an investment strategist with First Trust Advisors.

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You also might consider a mutual fund like Allen's, whose top holdings include Google, Cisco Systems, and education tech company Blackboard and which, as of late November, had returned an annualized 27 percent over the past three years. Other tech funds that give investors access to the cloud are the Berkshire Focus Fund, which has returned 37 percent annually over the past three years, and the First Trust ISE Cloud Computing Index Fund, an exchange-traded fund unveiled in July that is invested in 40 companies with a strong stake in a cloudy future.

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