The meltdown of stocks like LinkedIn, Tableau and Splunk is leading some people to say “cloud is the new dot.com”.
To start with, the term dot.com brings painful memories. 2003 was by the far the worst financial year for our family. My dot.com startup failed after 3 years of trying and I had capital write offs in addition to the shockingly low salaries we had put ourselves on to conserve cash for the business. So, I feel the pain of many in the tech business as the NASDAQ meanders down.
But most cloud companies are different from the dot.coms of the early 2000s. In the dot.com world we had products but did not have customers – or at least not enough of the latter. For cloud companies, it is the reverse. There are literally hundreds of thousands of companies who are trying to beat down their on-premise costs – so there is little shortage of potential customers. The problem is more of pricing and product.
A few years ago, cloud economics were blindingly obvious. Many cloud vendors now want long term contracts, ignoring the nearly quarterly price/performance improvements someone like Amazon Web Services continues to deliver. They are also associating with old school partners who are making their economics look even less attractive.
Too many cloud companies are also trying to sell back office hr, general ledgers, budgeting, sales force automation, basic IT compute and storage features. And many on-premise vendors have caught up with me-too products in those areas. There are wide open industry and geography opportunities for them to pursue instead.
The pricing is easier to fix – if cloud vendors can be modest and go back to what worked for them in the past. The product extensions will take a little longer but it’s blue ocean stuff. They will find wide open, differentiated opportunities if they make the investments.
I cannot explain the vagaries of capital markets, especially one where China and energy trends drive valuations more than underlying technologies. For most of my career due to ethical and independence reasons I have stayed away from investing in companies I follow.
But I can tell you what I advise customers and vendors – the cloud game is still only in its early innings.
