Outlook Cloudy

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Professor Irwin Corey would understand …

The “World’s Foremost Authority” once explained, “Today we’re going to talk about the universe. Why? Because there isn’t anything else!”

I’d hoped that when I deconstructed Nicholas Carr’s paean to Cloud computing — officially titled The Big Switch: Rewiring the World, from Edison to Google but more properly titled The Joys of Griddish — it would put an end to the nonsense (see “Carr-ied away,KJR, 2/4/2008).

Instead, Newsweek has solemnly declared it to be one of the 50 must-read books of 2009 (“What to Read Now. And why,” 7/13/2009).

Never a very precise term, “Cloud computing” has entered that phase of technology hype where, like Corey’s universe, there isn’t anything else. Hosting? It’s the Cloud. Software as a Service (SaaS)? Likewise. Outsourced data centers? You bet. Virtualized servers inside the data center? Of course.

Which means I have to revise my prediction that Cloud computing won’t turn out to be all that important. Here’s my new geometric-style proof:

1.  Definition: Cloud computing now means everything.

2. Definition: Something is a subset of everything.

3. Axiom: At any given moment, something is important.

4. Conclusion: At any given moment, something about Cloud computing will be important.

And yet, in spite of the Cloud’s new, tautologically inevitable significance, Gartner was recently surprised … that’s right, surprised … to discover that SaaS — a Cloud centerpiece — is going nowhere, due primarily to high cost of service, difficulty with integration, and technical shortcomings (“Gartner finds lukewarm response to SaaS,” ZDNet, 7/8/2009).

Why do these surprises happen so often? Blame propanethial-S-oxide. It’s the chemical in onions that makes you cry (on contact with tears it forms sulfuric acid) — the reason so many people fail to peel the onion very far.

That’s the problem. When viewed from 100,000 feet or so, SaaS and other Cloudy ventures look just like panaceas to all of IT’s problems (or else they look like Snoopy, except when they look like a croissant … but I digress). Get close to a cloud, though, and it turns out to be fog.

Back to our nebulous, unpeeled allium. From 100,000 feet, this syllogism looks solid:

Major premise: salesforce.com sells a lot of licenses.

Minor premise: salesforce.com is an example of SaaS.

Conclusion: SaaS will sell a lot of licenses.

Peel the onion a few layers (or, descend from the clouds to ground level … we have a lot of metaphors floating around in this column) and the fog lifts. Salesforce.com sold a lot of licenses because:

  • Commercial CRM packages like Siebel cost a lot and were chronically mis-implemented as sales management solutions instead of sales effectiveness solutions.
  • IT hated Act! because sales professionals insisted on using it instead of the expensive CRM package, violating IT’s desktop lockdown policies. (The sales professionals had the temerity to want something that helped them, for example, sell.)
  • Salesforce.com had an interesting property: The need to integrate it into the rest of the applications portfolio was generally quite limited. It succeeded as a point solution.

Which meant the VP of Sales could authorize the purchase of salesforce.com licenses and IT need never know it happened. Even better, by buying the licenses a few at a time the implementation could be hidden as an operating expense, avoiding the capital approval process. Anyone who has been through the ordeal knows that, as practiced in most companies, the capital approval process is or should be banned by the Geneva Conventions.

That’s the trouble with pundits like Carr and some Gartner analysts who have never had to do the work. They don’t know how decisions get made in real companies, let alone understand the nasty details of engineering needed to turn their so-called visions into working technology.

And yet, pressured by the need to have the Next Big Idea, they write influential articles and books about How Businesses Will Behave, thereby pumping up entire industry segments to ridiculous levels.

Ridiculous? Here’s just how ridiculous. As of this writing, salesforce.com trades at around 35, which is roughly half of its 52-week high. Even with its price cut in half, its price-to-earnings ratio is a stratospheric 88.76, far above the clouds. And salesforce.com is probably the most successful SaaS vendor in the world.

Had Carr, Gartner and all the other Cloud-promoting pundits subscribed to Keep the Joint Running they’d have known better. Maybe if I’d called it a Cloud computing service they would have.

Comments (4)

  • I have been wanting to invest in a long term stock that would be very profitable 30 years down the road. But at this day and time it is hard to tell what to invest in.

    From reading what Motley Fools says that the next big investment should be in Clouding Technology. But, what you have said I am not so sure about that statement from Motley Fools.

    I know financial advisors cannot pick the future investments, but if you had $10,000 to invest in a stock, what would you pick?

    Thank you,

    • Uh uh. I’m not giving investment advice. There’s a difference between my thinking the technology is overhyped and how the markets respond to the hype. Dangerous territory for someone in my position.

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