The Cloud: No Longer Distrusted and Misunderstood

A recent survey on cloud computing explored the business growth opportunities for buyers and consumers of cloud services alike, and its findings about confidence are surprising. Businesses are experimenting with the technologies and services that are available.

The multi-year annual survey on the cloud market provides a springboard to examine some of the implications for where the growth opportunities and inhibitors may be.

To learn more about where the cloud business has been and where it’s going, listen to an interview with Michael Skok, partner at North Bridge Venture Partners, which conducted the survey. The interview is conducted by Dana Gardner.

Before joining North Bridge in 2002, Skok had himself been an entrepreneur and CEO in the software business for 21 years.

He founded, led, and attracted more than US$100 million in venture backing to his investments in multiple successful software companies. As a venture capitalist himself, Skok has invested in many entrepreneurs who have together built more than a $1 billion of value, focusing on large market-changing technologies and disruptive business models such as software as a service (SaaS), cloud computing, open source, and mobile.

Companies in which he has invested include Acquia, Akiban, Apperian, Demandware, Unidesk, and Revolution Analytics.

Skok’s passion for innovation and entrepreneurship is also fueling his work mentoring and developing the next generation of entrepreneurs. For example, he is currently developing and leading workshops such as the “Startup Secrets” series with the Harvard Innovation Lab.

Download the podcast (41:26 minutes) or use the player:

Here are some excerpts:

Dana Gardner: Is there anything to indicate from your survey and your experience lately that there is a waning interest or enthusiasm for cloud?

Michael Skok: Obviously there’s an increasing interest in understanding cloud, but as cloud has captured so much attention, there is also a significant interest in understanding what the real applications and potential for it are. People are trying to get beyond the hype, at this stage, to understand the practical applications and opportunities.

Gardner: Is it fair to say that confidence is up because the perceived risks are down, or are we still working through how confident people are and whether there are significant risks here?

Skok: Maybe the best way to answer that is to give you some specific data from the survey, and rather than have my commentary, it will give you the market’s viewpoint on this. That’s one of the key reasons we run the survey — to try to understand what vendors and customers believe are some of the key issues, both driving and inhibiting the cloud.

So I’ll jump in and give you some of the inhibitors first to answer your question on risk, for example, and then perhaps we can talk about some of the drivers.

On the inhibitors, one of the things that’s interesting this year is that, if you look back to 2011, 10 percent of the survey respondents would have said that the cloud is just too risky, and they gave many reasons last year. This year, we’re down to 3 percent. So that’s a significant drop.

Now, I’d argue that 3 percent says that you’re at a point where people are beginning to understand cloud better, because the issues that they are raising are things like data sovereignty and the Patriot Act. Those are very real issues that are unlikely to just disappear, and they are beyond just cloud. They have to do with the reality of how people have to run their businesses.

The good news is that 12 percent feel that the cloud still needs to mature. That’s not so significant number, but it’s down from 26 percent in 2011. So again, people are starting to feel that the cloud is obviously meeting more of their needs.

When you look at the issues behind those 12 percent who are looking for greater maturity, there are things that again you would expect to see in an early-stage market — things like security and compliance, and that’s very typical.

If you looked at any major trend that comes into the marketplace, if you looked at the initial early days of the web and eCommerce, people said things like, “We’ll never put our credit cards on the web.” Now, not only do we put our credit cards on the web, but we allow people to do Internet banking and take photos of the checks as a means to make deposits from their cellphones.

So things have come a long way, and that’s just the time-scale that it takes. It’s typically several years before things mature and get people confident in these kinds of applications.

Encouraged by results

So I’m encouraged by those results. The next obvious thing that comes out of the survey is how many people are still experimenting. About a third are experimenting, 34 percent to be precise, with concepts in the cloud, driving applications, and using the cloud in some innovative ways.

For example, you see companies like Bank of America, who do trials using the cloud, and if they are successful, they use the cloud’s elasticity to quickly expand their trials. If they’re not, they just throw them away. That’s a great example of how the cloud is specifically enabling people to do trials and get to market faster and be more effective.

And the other side of the coin, the great news this year is the rapid growth in confidence overall in the marketplace. If you had asked how many people had complete confidence in 2011, you would have gotten an answer about 13 percent, and this year it was fully 50 percent.

So we’re not quite at a tipping point, because you have to double-click on that 50 percent. You have to understand the split between vendors and customers, and vendors were over half. In fact, 56 percent of them have complete confidence in the cloud. So you’re seeing net new development in cloud from independent software vendors (ISVs), absolutely the tipping point. You see very few companies starting up today that aren’t building in a cloud.

But if you look at the customers, they’re not quite at that same level of confidence. Just over a third, 37 percent in fact, have complete confidence. More of them are experimenting and waiting for it to mature, as we were just talking about, and some of them still feel it’s too risky.

So it’s a long answer to your question. I hope it gives you some substance backed up by the survey to get a sense of this, and I am happy to answer any questions behind that.

Gardner: It’s interesting that those who are in the cloud ecosystem themselves are very confident, and you’d think that they would have the most to lose. They’re making their investments, but the longer tail toward the consumer side is still catching up to that.

It certainly seems optimistic for the market in general that those in the know — those that are using these to build business — that they themselves will be providing cloud services and are so confident.

Skok: It turns out that there’s an interesting representation of players in the survey here, in that we have got both vendors and users responding. There were over 785 in total, mostly C-suite, but more than a third of it are customers.

Of the vendors that are represented, we’re covering everything from Amazon to Citrix, to some of the mid-tier players like Rackspace, Red Hat, and others, and also up-and-coming and emerging players, for example, Eucalyptus and Acquia.