Remember the dot-com bubble? Fueled by hype and speculation, it was a time when virtually anyone with a web site would be showered with money as people tried to get in on this new thing called the Internet.
Those of us who were there could predict the outcome from a mile away: Reality finally set in, and the absurdity of placing a $20 million valuation on a company that sold live bait over the Web became too great to ignore. But in the end, the Internet endured, and the companies that did in fact provide a valuable service – and were able to monetize it properly – thrived.
While it may still be too early to tell, I can’t help but wonder if we aren’t seeing the same thing repeating itself in the cloud. It seems that the investor classes have yet to see a cloud service or technology they don’t like, particularly if it relates to enterprise workloads. Companies like Textura, which provides on-demand collaboration software for the construction industry, are seeing healthy gains on their IPOs, even on days when the overall markets are down.
Another recent example is Marketo, which has devised a marketing software platform that allows clients to automate their market execution and analysis processes. The company rose 77 percent on its IPO last month, gaining a market capitalization of $869 million. It is fair to say that a company like Marketo, which lists some 2,000 customers already, including GE and Citrix, has more profit potential than many of the dot-com casualties, but it is still unclear whether its fundamentals are solid enough to justify that level of valuation.
One of the aspects of a classic bubble is the presence of big spenders willing to drop loads of cash acquiring select assets. This tends to inflate the value of just about anybody related to the bubble industry, regardless of whether they have any real prospects. In this case, the big money is coming from Google, Facebook, Apple and others as they compete to see who will rule the new data universe. Google, for example, is close to wrapping up its winning $1 billion-plus bid for Waze, a developer of mapping software that reportedly had drawn the interest of several tech giants. And since Google already has its own mapping software, it’s hard to see this as anything but an expensive move to coopt a potential competitor. But this is the kind of thing you can do with a $14 billion war chest.
If this is a cloud bubble, though, it is quite possible it will be short-lived. Gartner, for one, claims that early cloud hype is already giving way to disillusionment as the realities of cloud-based infrastructure, and the challenges to implement it, are starting to set in. And with every outage at Amazon and every run-of-the-mill software stack remarketed as a cloud solution, a tactic known as “cloud washing,” skepticism gains a stronger foothold in the enterprise imagination. Clearly, cloud infrastructure is real and is having a dramatic impact on the way data is stored and utilized, but that doesn’t change the fact that it is unlikely to provide all the features that early boosters had promised and, with some applications, may even be less utilitarian than the traditional data center.
To a free-market economist, this is nothing more than the natural cycle that fluid capital engenders. And as long as we’re not talking about a market that has the potential to take the economy down with it (cough, cough, real estate), there is little reason to fear a cloud bubble. After all, there are ways to make money when markets are going down as well as up.
But as I said, I’m not sure we are seeing an actual cloud bubble yet. True, there is a lot of exuberance out there, but it is too early to tell if it is irrational or not.