So, what the heck is "cloud computing"?
Even after reading a 14-page special report in this week's Economist, I still have a hard time coming up with a concise definition. Perhaps the easiest way to understand the basic concept is to think back about 15 years ...
If you wanted to type a letter, create a spreadsheet, or play a game, you'd have to go to the store, buy the software, and install it on your hard drive. And each time you used one of these applications, everything you did took place inside the computer sitting on your desk.
But then the Internet came along.
Oh, brave new world
Nowadays, if you want to watch a video on YouTube, share photos with friends on Flickr, listen to music on MySpace, or post an ad on Craigslist, all you really need is a browser and an Internet connection.
That's because nearly all of the applications we use and all the data we access is now stored on a remote server somewhere out in "cyberspace." And these servers are housed in massive data centers that are all interconnected via the Internet to form a giant computing grid or "cloud."
According to The Economist, 69% of Americans now use some kind of "cloud service," be it Web-based email, online data storage, or online applications such as Google Docs.
Furthermore, businesses are using cloud computing to drastically cut their IT budgets -- hence the explosive growth of enterprise software-as-a-service (SaaS) companies such as salesforce.com (NYSE: CRM) and NetSuite.
Why VCs are going ga-ga over Amazon's shares:
Putting his money where his mouth is
Gurley told us that he'd just snapped up shares of Amazon.com at roughly one times enterprise value -- in effect, giving him a slice of the cloud-computing pie for free.
Among his reasons for liking Amazon over Google in the cloud-computing space:
- CEO and founder Jeff Bezos' strategy of being a "low cost operator"
- Amazon's highly developed cloud computing infrastructure
- Superior customer service
- While developers figure out how to best use Google's App Engine, he sees money-making businesses being built on Amazon's Web infrastructure