Crackpot Ideas

George Zachary is a partner at Charles River Ventures, and at the recent TechCrunch Cloud Computing Summit, he said, “Cloud is the new dotcom”.  This statement has inspired a variety of responses, but one I’d like to highlight is Reuven Cohen’s.  Reuven is the Founder of Enomaly, a company that makes a software product designed to manage virtualized environments.  He’s also managed to carve out a niche as one of the “leading minds” in cloud computing, which seems to mean a lot of long blog posts wherein he muses about the future of cloud computing.  One in particular, however, got my dander up, and I feel like it’s worth responding to.

Before I get to that, I completely agree with Mr. Zachary.  There’s no doubt that cloud is the new dotcom.  I have been part of three different “buzzword waves” – “dotcom”, “grid”, and “cloud”.  I worked for Register.com, which was one of the IPO darlings of the dot-com bubble, and was there for its collapse as well.  I’m one of the founders of a company with “Grid” in the name, where we envisioned that database automation would be one of the drivers to a dynamic infrastructure at a data tier.  And now, I’m participating in the emergence of the third buzzword, “Cloud”.

If we look at each of these buzzwords in turn, we’ll see that there’s a variety of things that each of these have in common.  While I’m not normally an analyst bandwagon type, I think the Gartner Hype Cycle is a pretty good representation of what happens as new technologies rise up.  However, in the interest of space, I’m going to make my own far less professional version and break it down to three steps:

• A couple folks step up – “Hey, we have a slick idea, we think we can solve a cool business problem”
• Bright and Shiny – a million companies and people rush to claim market share, VC money gets thrown around, much pontificating happens, very little actual revenue gets generated
• The aftermath – lots of hangovers, lots of VCs with a bitter taste in their mouth, a couple of massive players, some quietly successful folks, and a couple of companies that started in one area, and moved to something else.

Every one of the areas I’ve been involved in has followed this model, and history tells us that there isn’t anything new under the sun.  Let’s look at the dotcom model.  There were some early dotcom companies – Yahoo!, ask.com, Amazon, eBay, Paypal, plus a bunch of companies I can’t bother to remember.  They start to get some traction, all of a sudden everyone sees there’s cheap VC money around, and everyone wants a piece.  We all know what happened from there.

The thing is – there’s nothing wrong with what happened.  There was a genuine business innovation, everyone piled on, the people who had the best ideas/executed best/funded best won.  Everyone else lost or adapted.  The system works.

The same thing happened with “Grid”.  Businesses finally came around to the idea that many of their long-running jobs could be broken down into smaller sets, and then those compute sets be shared among a common pool of computers that could be allocated and de-allocated on demand.   A bunch of companies jumped on the bandwagon.  Much ink was writ.  Then, the hype moved on, some companies prospered, others failed, others adapted.

This is exactly why “cloud” is the new “dotcom”.  I’m not sure if we’re at the business hype peak of the cycle, but for sure we’ve passed the initial phase.  In the early days we had SaaS providers such as Salesforce.com, and IaaS providers like Amazon, and people griped about both of their limitations.  This has spawned an ecosystem of different companies trying to expand upon/rebuild/differentiate from what these early folks were doing.  And again, there’s nothing wrong with this.

Since none of them are that successful yet, everyone is on edge, trying to figure out how to make their voice heard, how to make a name for themselves.  This brings me to the original post that riled me up.  On his blog, Reuven says in reference to the aforementioned comment:

“Over the last few months you may have noticed a sharp in my verbal disdain for the venture capital community. I’m taking my VC disdain out of hibernation for this post. If you are a venture capitalist and easily offended, stop reading now.

Folks, I’m afriad that Charles River Ventures partner George Zachary has single handily proven why the venture capital business is doomed.”

So, global economic crisis aside, the observation that perhaps there’s a certain amount of unwarranted hype associated with the concept of “cloud computing” warrants the death of venture capital funding.  I’m sure all of the LPs out there will be very interested to learn that.

I’ll skip over requoting his whole post to focus on the next major point he says, which is:

“Cloud Computing is not just a catch all for the latest Internet applications, it respresents a fundimental shift in how we use and build applications in a networked world.”

Here’s the reality – it might.  We don’t know yet.  Certainly, the ability to get server space that quickly is nice and useful.  Having application execution time where you don’t have to worry about the servers at all is very exciting.  But how much business actually gets done “on the cloud”?  Amazon doesn’t even break out its revenue for its cloud computing platform.   In fact, Mr. Cohen also made hay out of:

“Congrats to Salesforce.com on being the first 1 billion dollar Cloud company!”

Well, see, here’s where the definitions start to get a little murky.  I don’t really consider SaaS “cloud”, at least in the model where I buy a monthly subscription to a software that is hosted by someone else.  For example, I doubt most people would consider 37Signals a “cloud computing” company – they sell web apps.

However, Salesforce.com has their Force.com platform, which IS definitely cloud computing.  But they don’t break out revenue of Force.com vs. their regular old SaaS.  So, to say that Salesforce.com is the first $1b cloud computing platform is like saying that Oracle is the first $10b cloud computing platform, since you can run Oracle in the cloud and they have a SaaS platform.  You heard it here first!

The point that I’ll end with here, is that Mr. Cohen ends his original post with:

“P.S, If you’re a VC interested in a Cloud Startup, my is investor deck is always ready. I look forward to answering my favorate VC question, What is cloud computing?”

While I thought he had nothing but disdain for VCs and longs for the end of VC funding, it’s nice to know he’s still interested in getting his slice of the hype pie.