Cloud this, Cloud that - the word cloud is clearly an overhyped word and reminds me of the beginning of the hype around hosted models and ASPs (application service providers) in the late 90s and the term SAAS today. Anyway, as I look at announcement after announcement released about cloud computing platforms, one thing is pretty clear to me from an investment perspective. First, I am not going to invest in the next hot cloud computing infrastructure service that will compete against Amazon, Rackspace, Microsoft, and every other large tech vendor in the world. This is suicide and far from capital efficient. Secondly, while everyone looks in the consumer space, I want to look at how software companies can deploy new enterprise-based applications in the cloud, particularly for small/medium sized businesses. In other words, show me the arms merchants with a recurring revenue model and frictionless sale and I will definitely be interested.
Some of the companies that fit this parameter include Rightscale (founded by Thorsten von Eicken, a cofounder of former portfolio company GoToMyPC) and one that I am looking at in the email archiving and compliance space which has a number of OEM partners reselling its service. Rightscale is an on-ramp to Amazon EC2 and other clouds and provides automate systems management. It kind of reminds me of a next generation Tivoli or Openview. The beauty is that the whole sales cycle is quite frictionless and all web-based which means an oppotunity to scale quickly. There are a number of other recent players I have seen including one for BI in the cloud (not exactly sure what the killer app here is yet) and many others. Of course the trick here is not to get enamored with the word "cloud" but to really understand the business problem that is being solved and why leveraging a cloud computing platform offers better economics, scale, and competitive advantages. As I dig deeper into some of these companies, it is clear to me that software purpose-built from the ground up to live in a cloud has a huge advantage since it is hard to retrofit off-the-shelf software to leverage all of the benefits offered by Amazon, Rackspace, and the like. Secondly, many of the better companies have built some slick tools and services to solve difficult problems like how to make customers feel like they have their own privated, dedicated systems while still keeping costs low. Finally, from a go-to-market perspective, a number of the companies I have spoken with have not gotten the question of whether or not they could scale as they quickly point to their backend provider and move to the next objection. So, if you have an application targeted at the SMB market that is taking advantage of cloud economics, please feel free to contact me.