The bubble hype is neither here nor there, but looking at the description of the fund, the key question is whether its top 10 holdings appropriately reflect leaders and bellwethers of the cloud computing landscape. Here's the list as of July 21:
|Open Text Corporation|
|TIBCO Software Inc.|
|F5 Networks, Inc.|
A good number of companies here do represent trends in cloud computing, but others don't exactly fit the bill.
For instance, Open Text is still largely viewed as enterprise content management. The company is shifting to Software as a Service (SaaS) based versions of its software, but it's still largely an on premise, license-based business. Teradata fits more into the big data trend with its Aster Data SQL MapReduce Developer Portal, a Platform as a Service for SQL MapReduce analytics. It's possible to make the connection between cloud and big data, but it's possible to make a connection between cloud and just about anything these days.
HP's Application Lifecycle Management software is apparently also cloud computing, although not cloudy enough to make the top 10 holdings. But Blackboard, Inc., an online learning tool, did make the top 10 list. Then why not other SaaS companies out there? Workday is one of the fastest growing enterprise SaaS companies and is nowhere to be found on this list.
VMware is in the top 10, but Microsoft isn't and Citrix didn't make the index at all. That's really odd given the company's recent $200 million+ acquisition of Cloud.com, one of a handful of actual cloud computing infrastructure software companies in the market.
Looking at First Trust's weighting and inclusion criteria just about any technology company on the planet today could be included in their index:
- Pure Play Cloud Computing Companies: Companies that are direct service providers for "the cloud" (network hardware/software, storage, cloud computing services) or companies that deliver goods and services that use cloud computing technology.
- Non Pure Play Cloud Computing Companies: Companies that focus outside the cloud computing space but provide goods and services in support of the cloud computing space.
- Technology Conglomerate Cloud Computing Companies: Large broad-based companies that indirectly use or support the use of cloud computing technology.
Suffice it to say, this is an interesting list of companies that build, use or buy technology, but it is not an indicator of the key companies in cloud computing. That makes it both useless from a fund perspective, since these companies aren't going to rise or fall based on trends in cloud computing specifically, and useless from an analysis perspective.
This fund will generally do about as well as any tech fund will but it's not going to tell us anything interesting or useful about the cloud computing market, because half these firms aren't cloud providers or enablers. Put one together based on how VCs are investing, and people might look twice. Put one together based on actual companies involved in cloud computing at a fundamental level, and somebody might actually make more money than other tech funds (Equinix dropped a senior note worth $500m last week, hello…).
Jo Maitland is the Senior Executive Editor of SearchCloudComputing.com. Contact her at email@example.com.