While there has been a tremendous amount of articles, whitepapers and other information written on cloud computing, most of it is from IT vendors or market research firms. In a Viodi View article last year, we reported that IDC said “the Cloud platform would be in a power position for the next 20 years with spending expected to ramp up in 2012.” But where will that spending be targeted? We’ve haven’t heard from venture capitalists (or other investment firms) as to what they perceive are the real opportunities for entrepreneurial companies pursuing deliverable cloud platforms or software. Until now.
At its January 25, 2011 TiE Charter Member meeting (not open to the public), IT expert and Greylock Partner Asheem Chandna weighed in with his thoughts on those opportunities and the types of Cloud companies that are ripe for VC investment. Asheem first provided a background, then opinions on the cloud market and, finally, some potentially hot areas for VC investment in the cloud space.
Editors Note: TiE’s exclusive Chater Member monthly meeting are open only to it’s nearly 300 Charter Members, but selected members of the working press are invited. It was in this context that I had the opportunity and privilege to listen to Asheem Chandna and interview him after his presentation.
Background for Cloud Computing:
Mr Chandna stated that the IT landscape is changing dramatically, as CIOs shift technology priorities. CIOs are now emphasizing technologies like virtualization, cloud computing, web 2.0, business intelligence, integrated voice/data networking (often referred to as “Unified Communications” or UC), security and mobile computing. The new IT landscape includes a mix of Software as a Service (SaaS) and existing apps running on in-house data centers; public cloud services along with new enterprise apps being developed to run in the cloud. While overall IT spending is projected to increase by 3 to 6% in 2011, these newer technologies are expected to grow at a much faster rate. This implies much greater use of the web and less use for in-house servers and the apps running on them.
“All the major IT vendors are reassesing and redefining their business boundaries to include cloud computing,” Mr Chandna said. But what does cloud computing actually mean? Gartner defines cloud computing as “a style of computing where scalable and elastic IT-related capabilities are provided ‘as a service’ to external customers using Internet technologies.” The three well known layers for cloud computing are: Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (Saas) which is also known as Application as a Service (AaaS).
Some of the critical attributes of cloud computing were specified:
- Service Based: Consumer concerns are abstracted from provider concerns through service interfaces
- Scalable & Elastic: Services scale on-demand to add or remove resources as needed.
- Shared: Services share a pool of resources to build economies of scale.
- Metered By Use: Services are tracked with usage metrics to enable multiple payment models.
- Internet Technologies: Services are delivered through use of Internet Identifiers, Formats, and Protocols.
While cloud computing is clearly the next big thing in enterprise IT, the hype level is very high. Yet there are several compelling reasons why enterprise and IT departments are generally interested. These are depicted in the figure below (Note: data for Dec 2010 was not available).
According to Asheem, all CIOs must answer the very important question of, “Why not run applications in the Cloud?” Some of the issues they will consider in answering that question include: Price, Capability level, Service level, and Risk level. Key concerns CIOs have with cloud computing include: security and data privacy, regulation and compliance, performance, vendor lock-in, integration (with existing legacy apps and infrastructure), immaturity, and costs (to migrate applications from in house servers to the cloud).
Author’s Note: We are convinced that security is the most important concern potential cloud users have and for that reason, many will opt for private clouds. But even then they may not be as secure as we might be led to believe. At a January 26th SCU seminar, Ed Talbot of Sandia Labs stated, “Current cyber security approaches are fundamentally broken. Vulnerabilities in current implementations are virtually limitless and threats are exploiting these vulnerabilities faster than we can detect and counter them. Current cyber security implementations compound the problem by creating the illusion of security. The result is a primitive cyber society in which trust and confidence are absent or, worse yet, deceptive.” These comments refer to Enterprise IT and Internet security in general. One would suspect there are even more vulnerabilities with Internet accessed “Cloud” based platforms, independent of whether it’s a private, public or hybrid cloud environment.
Asheem distinguished between an external cloud (public or virtualized private cloud) and an internal computing envrionment – virtualized or not. We might add that many private clouds will be realized by external servers in data centers that are provided by IaaS vendors. Amazon’s EC2/S3 is probably the most successful private IaaS offering to date. But IBM Cloud and Rackspace Cloud Servers are also popular.
Mr Chandna asked a very intriquing question: Is Public vs. Enterprise Cloud a fair fight? In other words, can you legitimately compare them from an IT perspective? In most cases, the scale and commoditization of both hardware and software gives a cost advantage to the public (or virtual private) cloud. However, there is a potential loss of privacy and the aforementioned security risks inherent in accessing Internet based servers in the public cloud. It remains to be seen whether or not smaller companies will opt for public clouds, which might be more cost effective, or private clouds, which might be more secure (or maybe not!).
VC Opportunities for Cloud Start-Ups:
Greylock continues to be a very active investor and company builder in cloud computing and enterprise IT. The firm’s current enterprise portfolio spans companies in cloud/SaaS applications, data center and virtualization, management, security, storage and networking. Mr. Chandna believes that cloud computing creates significant opportunities for entrepreneurs to create new companies – around new cloud-based applications and services, and around new infrastructure technologies required to enable cloud computing. In particular he sees management, mobile enterprise, security and storage as very fertile areas for new company formation.
In summary, Mr. Chandna stated that cloud computing represents a multi-year transformational change for enterprise IT and that there would be many opportunities for new companies to participate. Greylock intends to continue to focus on “best-in-class” teams and technology approaches that support the building of significant and sustainable franchises.
About the Speaker:
Asheem Chandna is a partner at Greylock Partners. His areas of interest and expertise span enterprise IT infrastructure, software and services. He has invested in companies in cloud computing, data center, electronic payments, networking, management, security and virtualization. Asheem’s current company boards and investments include AppDynamics, Aquantia, Delphix, Imperva, Palo Alto Networks, TechProcess and Xsigo Systems. He was previously on the boards at CipherTrust (MCAF), NetBoost (INTC), PortAuthority Technologies (WBSN), Securent (CSCO), Sourcefire (FIRE) and also invested in Aruba Networks (ARUN). Asheem joined Greylock from Check Point Software, where he was vice-president of business development and product management. During his 6+ year tenure, Check Point grew from $10M to $500M+ in annual revenues.
1. For more information about TiE-SV please visit: http://sv.tie.org/
2. For more about Greylock Partners please check: www.greylock.com
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