Building a Smarter Business: Working in the Cloud

By Michael Heenan, Senior Research Analyst

Cloud computing, otherwise known as the cloud, is redefining the way nearly every business operates. Digitization is a focus across all business sectors and demand is growing. From local dairy farmers to the largest multinational corporations, businesses of all sizes are deploying the latest technologies to stay competitive. The cloud provides a game-changing platform for businesses looking to generate new cost savings, gain critical insights and capitalize on time-saving processes. The large cloud providers give access to artificial intelligence and machine learning tools developed by the leading data scientists, whose expertise is in high demand. Overwhelmingly, it comes down to embracing cloud technology for businesses to safeguard against being left behind.

To better understand cloud computing and the way it is transforming business, it is helpful to understand the most utilized cloud offerings: infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), software-as-a-service (SaaS), private cloud and hybrid cloud (Exhibit 1).

Cloud services

Infrastructure-as-a-Service (IaaS)

Companies have the ability to rent basic computer resources over the internet through IaaS. This includes compute power, storage, backup services, networking and other basic IT infrastructure. IaaS providers run a virtualized environment that allows customers to share in common costs associated with typical on-premise data centers such as hardware, climate control and maintenance costs. The user is still responsible for managing the infrastructure and all other general IT requirements.

  • Major Players: Amazon Web Services (AWS), Microsoft Azure, Google Cloud, IBM
  • Example: Company X uses AWS infrastructure to scale up computing capacity during the busy online holiday shopping season and scales down post-holiday rush
  • Pros: Lowers cost by providing a virtualized environment and shared resources while reducing hardware and real estate expenses. It also reduces IT infrastructure staff, has the capacity to improve information security and provides greater scale
  • Cons: Still requires internal IT staff to manage cloud infrastructure. Not all IT workloads run cost effectively in the cloud. It also requires high quality internet connection and there are some data privacy concerns in addition to increased compliance risks
  • Who uses it: IT system managers and those responsible for IT planning, installation and maintenance, including hardware and software upgrades
  • Our Growth Outlook: Double digit growth annually for the foreseeable future
  • Payment: Scales up and down based upon usage, allowing for flexibility

Platform-as-a-Service (PaaS)

Provides all the capabilities of IaaS including servers, storage and networking, PaaS also offers a robust operating platform, middleware development tools, database management systems and business intelligence services. It also includes security patching, scheduling, up-time and, most importantly, tools to develop applications for the cloud. It is designed to support the complete lifecycle of web application development. Enterprise customers are responsible for only the data and applications.

  • Major Players: AWS Elastic Beanstalk, Salesforce, Windows Azure, Google App Engine, Pivotal (Dell)
  • Example: Website development hosts like GoDaddy provide the complete suite of services for web presence including infrastructure, application tools and web hosting.
  • Pros: Simplifies development of cloud applications (develop, test, deploy), automates scaling and routine maintenance of infrastructure, reduces hardware costs and reduces the need for internal IT staff
  • Cons: Increases the risk of vendor lock-in, reduces the use of external-vendor tools and requires high quality internet connection
  • Who uses it: Primarily used by application developers (software coders)
  • Our Growth Outlook: Double digit growth annually for the foreseeable future
  • Payment: Scales up and down based upon usage, allowing for flexibility

Software-as-a-service (SaaS)

This on-demand software model allows companies to access software through an internet connection. Utilizing software hosted and managed by the developer (i.e., Microsoft, Workday) not only ensures that businesses are utilizing the latest versions of the software, but it also frees up valuable IT staff resources and reduces hardware needs.

  • Major Players: Salesforce, ServiceNow, Microsoft, Workday, Oracle
  • Example: Gmail, Office 365, Workday, Netflix
  • Pros: No upfront licensing fees or hardware costs and software is accessible anywhere. It allows users to run the latest software version, scale rapidly and no IT staff is required
  • Cons: SaaS requires high quality internet connection for software to work properly, software applications may not meet compliance requirements and data is stored outside the company
  • Who uses it: Business users, non-IT staff
  • Our Growth Outlook: Double digit growth annually for the foreseeable future
  • Payment: Typically a monthly subscription

Hosted Private Cloud

Run in a single-tenant environment, hosted private cloud computing provides rented space at an external data center where hardware, storage and networking are dedicated to a single organization.

  • Major Players: Rackspace, Microsoft, AWS, IBM, Google
  • Example: Company X has run out of space within its own on premise data center, but doesn't want to spend capital on building a new data center and is concerned about security
  • Pros: This service reduces the need to build new company owned data centers, increases security level and eliminates sharing of equipment (dedicated equipment versus virtualized equipment). Like the other cloud options, it should improve scalability, but also allows for customization. It also tends to meet higher compliance requirements and reduces hardware cost.
  • Cons: Still requires IT staff and high-quality internet connection. Costs are much higher than public cloud service due to the dedicated single-tenant environment
  • Who uses it: IT system manager, person responsible for IT planning, installation, and maintenance, including both hardware and software upgrades
  • Our Growth Outlook: Low-single digit growth annually
  • Payment: Fixed minimum monthly subscription; options to purchase more capacity

Hybrid Cloud

Just as the name indicates, the hybrid cloud offers a mix of traditional company-owned data centers, private cloud and public cloud computing. Most of the businesses we see today utilizing cloud technology have some form of hybrid cloud architecture and businesses are increasingly gravitating to this IT infrastructure model.


We believe we are in the early innings of cloud computing and it will likely continue to impact all industry verticals and dramatically change certain sectors. Most notably, the cloud will allow for massive data collection allowing users to take advantage of Microsoft, Amazon and Google's artificial intelligence and machine learning capabilities that were developed by the leading data scientists that otherwise are not available to enterprise customers. We expect to see fewer company owned on-premise data centers and significant growth of Internet of Things and Edge compute devices, all leading back to the cloud where it will be stored and analyzed to help cut costs, create new services, predict outages, improve safety and ultimately affect multiple areas of day-to-day life.



Download the PDF  



Past performance is not indicative of future results.

This material is to be used for institutional investors and not for any other purpose. This communication is being provided for informational purposes in connection with the marketing and advertising of products and services. This material contains current opinions of the manager and such opinions are subject to change without notice. Aegon AM US is under no obligation, expressed or implied, to update the material contained herein. This material contains general information only on investment matters; it should not be considered a comprehensive statement on any matter and should not be relied upon as such. If there is any conflict between the enclosed information and Aegon AM US' ADV, the Form ADV controls. The information contained does not take into account any investor's investment objectives, particular needs, or financial situation. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to you. The value of any investment may fluctuate. Investors should consult their investment professional prior to making an investment decision. Aegon AM is not undertaking to provide impartial investment advice or give advice in a fiduciary capacity for purposes of any applicable federal or state law or regulation. By receiving this communication, you agree with the intended purpose described above.

The information presented is for illustrative purposes only.

Specific sectors and securities referenced have been recognized as leading market players as identified by Aegon AM US. Specific sectors mentioned do not represent all sectors in which Aegon AM US seeks investments. It should not be assumed that investments of securities in these sectors were or will be profitable.

Aegon AM US may trade for its own proprietary accounts or other client accounts in a manner inconsistent with this report, depending upon the short-term trading strategy, guidelines for a particular client, and other variables.

Results for certain charts and graphs are included for illustrative purposes only and should not be relied upon to assist or inform the making of any investment decisions.

There is no guarantee these investment or portfolio strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest over the long-term, especially during periods of increased market volatility.

This document contains "forward-looking statements" which are based on change to the firm's beliefs, as well as on a number of assumptions concerning future events based on information currently available. These statements involve certain risks, uncertainties and assumptions which are difficult to predict. Consequently, such statements cannot be guarantees of future performance and actual outcomes and returns may differ materially from statements set forth herein.

Aegon Asset Management US is a US-based SEC registered investment adviser and is also registered as a Commodity Trading Advisor (CTA) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Aegon Asset Management US is part of Aegon Asset Management, the global investment management brand of the Aegon Group.

Recipient shall not distribute, publish, sell, license or otherwise create derivative works using any of the content of this report without the prior written consent of Aegon Asset Management US, 6300 C Street SW, Cedar Rapids, IA 52499. ©2018 Aegon Asset Management US. Ad Trax: 2300356.1. Exp Date: 10/31/19