How VCs are leading us down the wrong path for cloud computing

A foolish pack mentality and poor assumptions about cloud computing could saddle IT with bad options down the line

Cloud computing seems like a safe bet. I mean, any startup or existing company that does cloud computing and needs capital must provide a great near-term ROI for investors, right? Maybe not.

A wise venture capitalist once told me that those in the VC community move like flocks of birds. When they see the others moving in a certain direction, they all seem to follow. Cloud computing is another instance of that behavior. And if VCs and investors are naïve about cloud computing, IT will face business pressures to use cloud computing based on that naïveté, creating serious issues down the line.

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The trouble is that cloud computing is both ill-defined and broadly defined. There is a lot of confusion about what's real cloud computing and what is not. I have to admit that I spend a good deal of my day trying to figure that out as well.

What are the top three mistakes that VCs and other investors will make as they move into the cloud computing space? See below.

Cloud computing investor mistake No. 1: Assume a sustainable business model

The idea behind cloud computing is that renting is better than buying, but that assumes your purchases will be more expensive than your rentals. As I work through ROI and cost models for various enterprises, it's clear to me that the high subscription fees many cloud computing providers charge have to fall over time as the prices for enterprise hardware and software fall as well. That means the expected ROI may not be there for cloud computing -- and even if it's there at first, it could degrade significantly over time.

Cloud computing investor mistake No. 2: Have little understanding of the technology in the context of an emerging market
The trouble with new technology is that you need to understand how it works and plays with other technologies that are emerging around it. I'm finding that many details in the cloud computing space appear to be innovative and unique but turn out to be neither when you consider the larger market. The trouble is, you have to keep up with the technology details to come to these conclusions, which is very difficult in these fast-moving, hype-ridden days.

Cloud computing investor mistake No. 3: Buy into cloud-washed technology
Anyone with any significant enterprise technology offerings has quickly learned how to spin things as the cloud. Indeed, anything and everything that you could once find in a data center is suddenly cloud computing technology (the so-called private cloud), whether or not anything is new there. The market will figure this out at some point, and suddenly investors will abandon the faux-cloud companies whose technology you relied on.

Go cloud -- but do it wisely, not by following the VC flock.

This article, "How VCs are leading us down the wrong path for cloud computing," originally appeared at Read more of David Linthicum's Cloud Computing blog and track the latest developments in cloud computing at For the latest business technology news, follow on Twitter.


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