The sudden explosion of start-up ventures looking to capitalize on the cloud may give some investors jitters. If those investors learned anything from the dot com bubble, it should be easy to differentiate the contenders from the pretenders. Jeff Reeves wrote an opinion piece at MarketWatch that describes cloud investors as “Starry-Eyed” and Mr. Reeves goes on to reference Box’s recent IPO.
Prudent investors know how to spot contenders versus pretenders and Box’s own IPO says, “We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.” Use your own investment judgment when investing in companies that make statements like that. Generally speaking, these types of companies are not winning ventures and these do resemble dot com busts of the past. Remember, 93% of Box’s user base is non-paying customers. However, there is a stark difference in the dot com bubble and the current cloud landscape. In the year 2000, technology related venture capital skyrocketed to well over $105 billion according to NetworkWorld. Even with all of the newest cloud services sprouting up all over Silicon Valley, the cloud market only saw $30 billion in venture capital in 2013. What does this data mean?
Just like in any market, there will be winners and losers. The cloud will certainly have its fair share of losers but to say that the market is poised to bubble because of the recent uptick in “Cloudy” IPOs is simply ludicrous. For example, technology ventures actually received more VC in 2007 than they did in 2013. If there is an impending bubble, it won’t resemble the dot com bubble of 2000.
It almost seems as the word cloud is being used too broadly within the investment community. Large tech companies that are reinventing themselves as IaaS and PaaS providers will be the winners. The losers will be the companies that continue to hemorrhage money. This statement may sound ridiculous in 20 years but if you compared a company like Microsoft versus a company like Box, which company seems like a better investment in the cloud at this present moment? If there actually were an impending cloud bubble and that bubble burst, which company would survive once the dust has settled? These types of questions and scenarios are important to consider as you begin thinking about the best way for you to invest in the cloud.