Walter Price: The future of software is in the cloud

The days of the big enterprise software house, such as Oracle, are numbered, says a leading technology fund manager.

Cloud computing means that businesses no longer need to buy so much  expensive hardware and software from traditional providers. Instead they can just buy what they need  from cloud computing companies.

Walter Price, manager of the RCM Technology Trust, believes it’s still early days for the cloud computing revolution. But this revolution is unstoppable, and it’s happening faster than anybody expected.

What’s more, the uptake of cloud computing, mobile internet and the ‘internet of things’ will drive the next technology bull market.

The RCM Technology Trust, which is based in California’s Silicon Valley, aims to identify and invest in the companies that will benefit the most. It has holdings in software giants such as Apple, Google and Microsoft, and hardware manufacturers such as SanDisk and Western Digital.

The way Price sees it, cloud computing has two big advantages over the traditional big software vendors:

• Cloud software is cheaper

• Cloud companies are much more reliant on customer satisfaction. When a company’s value is almost wholly based on its customer subscriptions, it can’t afford to lose them.

The adversarial approach, where a big powerful company says “upgrade for $10m or find another vendor”, is doomed. Companies can spend 30-50% less on a product that is easier to use, easier to upgrade and costs a lot less to maintain. And unless companies such as Oracle adapt, they will die, because customers aren’t going to be spending huge capital sums on software any more.

One of the biggest growth areas in cloud computing right now is HR, finance and other back-office systems. And one company Price likes is Workday (NYSE: WDAY).

Workday provides a suite of applications including HR, financial management and ‘big data’ analytical software. It has more than 675 customers and 2,900 employees around the world. Revenue in 2013 was $469m, and the company made a loss of $150m last year, and $112m the year before that. But it’s been spending $40m a year in R&D, and now it’s “just about there”, says Price.

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12