A technology paradox continues to unfold before our eyes. On the one hand, the cloud computing market continues to grow and thrive — attracting new investors, customers and partners every day. But on the other hand, I believe we’re living in a cloud computing bubble. When it pops, dozens — perhaps hundreds — 0f cloud computing vendors will go bust and their partners will be forced to pursue alternative options.
But when will the cloud really go pop? Back in Q2 2011, Talkin’ Cloud witnessed a major correction on Wall Street that knocked down cloud computing valuations. However, cloud stocks have generally rallied over the past three to six months. Cloud stocks are already up nearly 6 percent since the start of 2012. And venture capitalists continue to pump money into cloud computing companies.
Joyent Cloud Services Platform
The latest example: Joyent, which makes cloud platform software for cloud services providers (CSPs), has received $85 million in new funding. Joyent claims its SmartDataCenter platform offers carrier-grade services to optimize utilization rates, performance, scalability and security.
True believers include LinkedIn, Gilt Groupe and Kabam, each of which run their clouds on Joyent.
How long will venture capitalists continue pumping money into Joyent and other cloud computing-focused companies?
The short answer: It looks like VCs are starting to invest their dollars in fewer companies. In Q4 2011, VCs pumped money into 844 companies, down from 861 companies in Q4 2011, according to the MoneyTree Report, a study conducted by PriceWaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.
According to the Associated Press’s analysis of the report:
“Venture capitalists piped $133.9 million into 80 seed-stage companies in the fourth quarter. That’s down from $233.2 million going to 90 such startups in the fourth quarter of 2010. The decline suggests some caution on the part of venture capitalists looking at the newest, often most risky, startup investments.”
Still, I suspect VCs will continue to pour money into cloud computing and mobile computing for at least the next decade. In the 1980s and 1990s, VCs focused most of the software platform dollars on client-server and then Internet start-ups. Now, the cloud computing wave is all the rage — though I’m sure we’ll see plenty of VC-backed cloud companies drown in all the hype.
The 
Interesting post, I’m not sure if it will be that soon that cloud computing goes ‘pop’. I think people will still continue to invest and pour money into it as it is a very worthwhile and superb piece of kit.
Peter,
I gotta concede: It’s difficult for me to predict how the cloud market will evolve in 2012… Anything longer-term is nearly impossible. Other than some insiders at Apple, who would have predicted the dramatic rise of touch smartphones, tablets, etc. Cloud dollars will keep flowing. But which segments — storage? security? mobility? — will attract the most cloud dollars? Unclear to me…
-jp
Interesting perspective. My sense is that cloud companies that have a solid business plan, including creating recurring revenues and customers, will continue to have success. If previous revenues going to hardware, professional services, and other technology truly displaced by new cloud services, I think the pivot in finding more efficient solutions will allow cloud companies to emerge.
Brandon,
The tough part for me, as a blogger, is to determine which cloud companies actually generate profitable margin from those recurring revenues. A lot of cloud companies tell Talkin’ Cloud about all the email seats they manage. But pinpointing the monthly profit margin in those seats can be difficult…
-jp
Your final statement says it all ‘cloud is all the rage’ VCs are throwing money into anything that says cloud but the question we have to ask ourselves is that are those hundreds of companies servicing a just nice to have or a valuable need?
Are they solving a legitimate problem that you, me or anyone else has which is the key to a sustainable business. Isn’t that the bottom line? Investors for years now have only touched those tech companies with a recurring revenue model (they see the upside too) unless they actually make something. For sure the time is right to change the game, bandwidth to our hands, compute in the core, great devices to do things we couldn’t do before. Who knows what it will be called next but VCs will lose a tonne of cash, the name ‘cloud’ will become a no no and we will move onto something else together with their money.
That said, love your site! read it everyday
Jon,
Thanks for the reality check. Yes, I certainly wonder what the next big “term” or “wave” in IT will be. Got my hands full with Talkin’ Cloud, MSPmentor and The VAR Guy. But always looking to ride another big wave… …
Thanks for reading Talkin’ Cloud.
-jp