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.