A new report on Cloud Computing from the London-based investment advisory firm Edison Investment Research takes a measured approach in examining the topic. The report focuses mostly on SaaS and on specific software-company investment opportunities in the UK, but takes a global view of Cloud Computing.

The report notes obvious advantages of SaaS for users-eg, -monthly pay-as-you-go fees rather than large upfront licensing costs, responsibility for ongoing maintenance in the hands of the provider--while noting that security and vendor lock-in concerns do remain. Its true focus, though, is on software providers, companies that face a perilous period as IT buyers begin their transition to cloudier services.

The report notes that the stratospheric margins of the traditional software business are lowered in the SaaS world, as companies face much higher delivery costs. It bluntly states that not every application is currently suitable for SaaS, but also points out that if a software developer has decided against pursuing a SaaS strategy, then "be prepared to explain why." (It seems this advice could be taken by IT buyers as well!)

M&A Activity
The report also notes the high level of recent M&A activity in this space--Adobe's Omniture acquisition, CA Technologies buying Nimsoft, and HP's recent 3Par gobblelization, to name just three--and goes on to analyze several UK software companies who are active SaaS players. (The UK list includes Allocate, EMIS, FFastfill, K3, Kewell, Maxima, SDL, smartFocus, StatPro, and Workplace Systems.)

The report is full of the financial analysie and metrics beloved by potential investors, takes pains to point out that Cloud developers must take multitenancy approach (whether on their own or as part of an IaaS strategy), and stresses in an understated way that "It is vital that software companies consider their approaches to cloud computing and define their strategies."