More Cloud Bubble Warning Signs

April 20, 2011

3 Min Read
More Cloud Bubble Warning Signs

By samdizzy

As co-founder of TalkinCloud, I certainly believe in cloud computing. But I’m also worried. If you really look at the cloud computing market, you’ll see numerous warning signs that we’re in a bubble — though it’s different from the dot-com bubble that burst back in 2000 or so. Former Fed Chairman Alan Greenspan described the term irrational exuberance way back in 1996. I think Greenspan would repeat that term again if he took a close look at some cloud computing companies and Silicon Valley investment trends.

First, let me clearly state: There are scores of great cloud computing companies. Many of them are profitable (just check our Talkin’ Cloud Stock Index for example). And several dozen have built worthwhile cloud channel partner programs for VARs and MSPs.

But plenty of pretenders have jumped onto the cloud computing bandwagon. Traditional client-server applications are being recast as cloud solutions. And dedicated server applications are somehow being repositioned for the cloud. Back in January 2011 and again in February 2011 I offered some cloud bubble warning signs.

Now, The Wall Street Journal seems to be sending similar warnings. In an article today, the Journal stated: “In Silicon Valley, investors are jockeying like it’s 1999.”

A few examples that The Wall Street Journal mentioned…

  • During Q1 2011, U.S. venture capital funds raised more than $7 billion, a 76% jump vs. Q1 2010, according to the National Venture Capital Association.

  • Twitter‘s valuation rose from $3.7 billion in December 2010 to $4.5 billion February 2011. Now, the valuation is closer to $7.7

  • After hearing a pitch from Zaarly, a mobile application, actress Demi Moore tweeted about the company and her husband invested in the company.

  • AngelList, a web site where entrepreneurs and investors match up, has turned away 3,000 potential investors in the past year.

  • Venture capitalists are starting to complain about investment competition from Wall Street firms.

  • Mike Maples, an early Twitter investor, told The Wall Street Journal that he didn’t do any investments in the first quarter of 2011 because “it’s crazy out there. It’s a true California gold rush.”

Don’t Panic, Do Research

For VARs and MSPs there’s no cause for panic. If you look hard enough and ask the right questions you can pinpoint cloud channel partner programs that have lasting power.

Plus, the cloud bubble isn’t exactly like the old dot-com bubble, which burst because too many company focused on web page views and online eyeballs rather than true profits. As I mentioned, most — potentially all — of the companies in our Talkin’ Cloud Stock Index are profitable.

Still, the cloud bubble will pop. It has to. There are too many investment dollars chasing cloud and mobile upstarts that haven’t generated profits yet.

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