The Cloud Disrupts Tech Giants

Wednesday, 25 Aug 2010 | 6:10 PM ET

Cloud-computing is possibly the biggest disruptive force to hit enterprise technology since the transition from mini computers to client server, said CNBC's Jon Fortt on Wednesday's "Fast Money."

The trends begs the question: Who's at risk of becoming the next Wang Laboratories? In software, Fortt said it's companies that make money from big, up-front license fees and ongoing maintenance contracts, including Oracle , Microsoft and IBM . On the hardware side, it's companies that sell specialized appliances, like network security boxes and low-end switches.

King of the Cloud
Get ready for a tech lightning strike.

Oracle and SAP are developing cloud-friendly versions of their software. IBM, Google , Microsoft and VMware plan to offer platforms that other companies can use to distribute their cloud-based offerings. Cicso's UCS servers and Nexus are all about surviving the cloud-era, said Fortt.

Software outfits that don't move fast enough, like commodity hardware, are at risk of losing out to cloud-computing, Fortt said. Dell , for example, has to figure out a new trick or it's likely to see its margins shrink.

Microsoft, on the other hand, has a good chance to grow if it plays it cards right with its cloud-friendly Azure platform. Fortt said they're getting developers to build on top of it. There are 90 percent margins on packaged software and now they've got to take some of those server and maintenance costs themselves. In doing so, they'll have to start selling it on a subscription basis to other people once they start becoming a cloud player.

Fortt said Google, being the 800 lbs. gorilla of the Internet, also has great potential for profit in this area, as well.

What's the Trade?

Brian Kelly, founder of Kanundrum Capital, said his favorite play in the cloud-computing space is still Rackspace Holding . He would also recommend Google.

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