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From funding to market share: Choosing a cloud computing startup

Beth Pariseau, Senior News Writer

From AppScale to Zillabytes, a plethora of cloud computing startups have emerged in recent years. There are three ways to go from here: acquisition, IPO or failure.

Thus, IT pros considering products from a cloud computing startup should also closely examine the company's funding, market segment and partner ecosystem before they buy.

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I prefer companies that are innovating at the top of the stack, new cloud applications and new cloud services, than companies that are trying to compete for a sliver of the cloud management space.

Michael Skok,
general partner, North Bridge Venture Partners

Identifying the source of funding for CliQr Technologies Inc. was important for Robert Banks, director of PZFlex, a virtual prototyping company based in Mountain View, Calif. that uses CliQr's CloudCenter software to manage clouds hosted by Hewlett-Packard Co. (HP), Amazon Web Services (AWS) and Rackspace Inc.

Banks said he believed it was a good sign that the company was funded by Google Ventures. "My understanding is that Google has been introducing them around a bit more now and getting more involved with them," he said.

Banks also stays current with other vendors in the market similar to CliQr, in the event CliQr is acquired by a company that wants to take the product in a new direction, or that fails to.

Cloud management is a vibrant market segment for startups; it is home to dozens of companies, from CloudPhysics and Cloudscaling to Cloudability and CloudCheckr, to name a few. This calls for caution on the part of the buyer, said Michael Skok, general partner at North Bridge Venture Partners, located in Waltham, Mass.

A company needs a unique value proposition to succeed, Skok said. "I prefer companies that are innovating at the top of the stack, new cloud applications and new cloud services than companies that are trying to compete for a sliver of the cloud management space," he said.

Products and technology change so fast, it's imperative on the part of the buyer to research market segment and competition.

For example, users should scrutinize Platform as a Service offerings in the next couple of years, as this is a market space that, according to Skok, is being "squeezed" between powerful Infrastructure as a Service (IaaS) players like Amazon and Rackspace at the bottom of the cloud computing stack, and who are looking to add value to their services with platform features, and Software as a Service (SaaS) vendors at the top of the stack, who are differentiated by the platform features they expose.

"There will be very few players that last in the Platform as a Service space," Skok said. "Platform as a Service will become either part of SaaS applications or Infrastructure as a Service."

It's also quite challenging for small companies to succeed in the IaaS market given the scale of dominant players like Amazon, Skok said.

In the SaaS market, Skok said media and entertainment, social and collaboration, e-commerce, mobile apps, big data and the Internet of Things all represent more fertile ground for startups to establish themselves.

Cloud computing startups to break with acquisition tradition

Historically, technology startups get gobbled up by big players -- such as IBM, HP, CA Technologies and BMC Software Inc. -- after reaching a certain level of success, said Bernd Harzog, an analyst at The Virtualization Practice LLC, based in Austin, Texas.

But this new generation will probably see different outcomes, Harzog said.

He predicted new companies like AppDynamics, New Relic and Splunk will create multi-vendor ecosystems that will become the focus of the cloud management market going forward, and the most successful will issue initial public offerings (IPOs) rather than be acquired.

"Within 12 to 24 months we're going to have three new publicly traded software companies -- Splunk, New Relic and AppDynamics -- running ecosystem plays," Harzog said. "Those ecosystems will replace the legacy systems management businesses of the legacy vendors."

Also important is the strength of a vendor's partner ecosystem, added Shlomo Swidler, CEO of consulting firm Orchestratus Inc., and who added that there are also specific product features to look for.

"The ideal solution supports AWS and has OpenStack support on the roadmap, provides deep analytics and configurable alerts, and -- most importantly -- provides the kind of reporting that your accounting department craves," Swidler said.

Beth Pariseau is senior news writer for SearchCloudComputing.com. Write to her at bpariseau@techtarget.com or follow @PariseauTT on Twitter.


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