For his recent success, Michael Fisher, chief executive of a local startup, can thank “the cloud.”

ElephantDrive Inc., a Westwood Village-based data storage company, has recently had a surge in customers. And because he’s part of the budding cloud industry, Fisher can expect more of the same.

Usually, businesses buy servers to store data and run applications. With the cloud model, businesses rent space on servers that store the data, and they run applications on the Internet.

That helps businesses cut expenses buying a physical server can cost thousands of dollars, while renting storage space online runs a fraction of that.

Though it’s still nascent, experts say the potential for growth in cloud computing is explosive. Merrill Lynch & Co. has projected the cloud market will reach $160 billion by 2011. And the cloud world received a big boost from Microsoft Co. recently when the Redmond, Wash., software giant announced it was getting into the game with the launch of Windows Azure, a cloud-based operating system.

Analysts said that as more and more digital use heads into the cloud, companies such as ElephantDrive will reap the rewards sooner than later.

“Absolutely, cloud companies will see a surge in business,” said David Smith, an analyst with research firm Gartner Inc. In the near future, some companies will be acquired by larger ones, Smith added, while others will see a boom in customers.

That has Fisher walking on air. His 10-employee company is a data backup business that rents to customers from private individuals to businesses an encrypted space on the Internet where they can store files including digital music, photos and documents.

Since he co-founded ElephantDrive in 2005, Fisher has seen growth almost every month. The company is on pace to triple its revenue from last year, and Fisher projects rapid growth in the future.

“As people become more comfortable with operating in the cloud, that will benefit us,” he said.

It’s already benefited another cloud startup, Casdex Inc., a two-year-old Thousand Oaks company with about a dozen employees. Last week it inked a deal with Mexican food chain Baja Fresh Inc. to archive all the company’s paperwork on Casdex’s cloud system.

Until the Baja deal, Casdex had mostly serviced small local law firms, said David Barley, the company’s chief technology officer. Casdex is now getting inquiries from large retail chains and expects more deals soon.

Grounded

A combination of factors has helped cloud computing recently gained traction. Internet connections have become faster and cheaper, allowing businesses to efficiently upload and download larger amounts of data.

At the same time, more businesses are doing more work digitally, and need more servers to store it and more technical staff to manage it. Cloud companies, said Barley of Casdex, aim to streamline the IT side by pushing data storage to the Internet.

“You don’t build your own phone system,” Barley said. “You don’t build your own power plant. You hire other companies to handle that. IT falls into the same category.”

But cloud companies face significant hurdles that could drag their growth down to Earth, analysts said. High on the list is reliability; if the servers that power the Internet storage space crash, that can shut down all operations.

One such outage occurred in mid-February. ElephantDrive and another L.A.-based cloud startup, Gumiyo Inc., rent their server space from Amazon.com Inc. and that company’s servers went down for about two hours. That meant 400,000 companies that had data on the cloud were paralyzed.

Fisher said ElephantDrive didn’t lose any of its customers’ data because it was backed up on multiple servers. But his staff did have to scramble to answer customer queries.

“The few outages we’ve seen, they’re dramatic,” he said.

Perhaps the largest difficulty cloud companies face is that their business model is new. Cloud company executives invariably said they have to explain to potential customers what the cloud is and how it works. And the response isn’t always positive.

“Probably the biggest barriers have to do with inertia,” said Smith of Gartner. “People just aren’t comfortable with it yet.”

Downside?

That didn’t stop Shuki Lehavi from making the cloud a central part of his company. The chief executive of Gumiyo, Lehavi runs a business that makes massive amounts of inventory data readable over a cell phone, allowing consumers to view homes for sale and check the inventory of the neighborhood car dealer.

But when he founded Gumiyo two years ago, Lehavi was in a bind. He estimated he’d need at least 20 servers, which would run his startup expenses to more than $100,000 more than his wallet could bear.

Lehavi instead turned to Amazon’s cloud computing service, renting one server for around $70 a month. Business has since blossomed: At its inception, Gumiyo reached only 300 car dealerships. Now, it counts 15,000 to 16,000 dealerships on its client list.

Meanwhile, Lehavi estimated he spends less than $5,000 a month to rent server space. “That’s not even what you would pay to buy one server,” he said.

But Lehavi sees a potential downside to more companies joining the cloud: As server space becomes more in demand, it will also become more costly.

“I would never admit it to Amazon, but they’re priced very reasonably,” Lehavi said. “They’re still coming in at an early adopter price. If everyone starts to get in, it will become more and more expensive.”