Mr. Whitt: There are a couple of major themes that will play out over the next several years. The main theme we see in software and technology is cloud computing. Specifically, software cloud computing includes three primary components. There are applications, or software as a service, with companies like Salesforce.com leading the way. Another component of cloud computing is the infrastructure, which includes hosting, computing, storage, etc. Amazon has emerged as the leading player in cloud computing infrastructure. And then there are platform providers, or platform as a service, which we consider the third component of cloud computing. The leading cloud computing platforms are Azure from Microsoft and Force.com from Salesforce.com, in our opinion. So cloud computing will be a major theme in technology and software. We consider Salesforce.com our top cloud computing investment idea, as the company plays in all three components of cloud computing - applications, infrastructure and platform.
TWST: Let's go back to the top on this. We have been hearing about cloud computing for a while. How important is it and what's driving it?
Mr. Whitt: I think the initial driver is SaaS, software as a service, the application component of cloud computing. Economics had been the key driver of SaaS - low upfront investments and speed of deployment. SaaS is a shared-risk model where customers can oftentimes try free versions and pay as they go. Particularly in a tough economy, it's a more attractive software consumption model for enterprises and small businesses. There're fewer adoption hurdles since it doesn't require much support from internal IT departments and the applications are hosted by the SaaS vendor. It's also easier for companies to align the costs with their usage patterns. During the economic downturn, many corporations reduced sales headcount or overall employee headcount, so it's easier to renegotiate SaaS contracts since the subscription contracts are typically priced per employee, per month, as opposed to an upfront license fee and annual maintenance fees that are more difficult to renegotiate.
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