May the cloud washing begin: Enterprise software giants graze on cloud startups

Large enterprise software vendors are gobbling up smaller cloud computing players. But the burden of cloud computing proof rests with the large enterprise software folks.
Written by Larry Dignan, Contributor

If you lead a startup focused on cloud computing or software as a service you're in luck. The big enterprise software players want to buy you. It's safe to say 12 to 18 months from today there will be a lot fewer young cloud players---they'll be units in giant on-premise applications companies.

Cloud washing refers to the practice of slapping the term "cloud" on any technology you have. Cloud washing's cousin is green washing (is anything NOT green these days?) The game plan for enterprise software giants: Buy up on-demand IT players, slap the term "cloud" on your old stuff and sell away to customers that are asking questions about these nutty upstarts that want to reinvent computing.

Need evidence? Consider:

And if the big bucks didn't make these cloud startups feel like belles of the ball, you can always sell out to smaller players that just happen to be a lot bigger than you are. To wit: SuccessFactors acquired CubeTree and Salesforce bought Jigsaw.

Simply put, this is a swell time to be a fledgling cloud computing player with a few customers, maybe some social mojo and a dream. What's not to love? The on-premise players have to paint their software and "solutions"---the second worst phrase behind "paradigm shift"---with the cloud lingo. Larger cloud players have to fill in product gaps.

But let's keep this post focused on the big enterprise software players. The thinking from the big boys goes like this: We've milked license and maintenance forever, but that gravy train may not last forever so we'll add some annuity revenue too. Vinnie Mirchandani pens an open letter to CIOs:

Mr. and Ms. CIO, over the next couple of years you will need a strong constitution as one after another of your big, “strategic” vendors line up to make acquisitions “in the cloud”.  They have plenty of cash to do so. It’s your money. You fattened them.

The punchline:

These vendors are sitting on hundreds of billions of cash they charged you lock-in prices for. And are about to buy smaller cloud vendors they steadfastly warned you for years were bad for your security and your health.

Mirchandani's advice: Get a strong stomach because you may hurl when you listen to all of the cloud chatter from on-premise giants.

In some respects, this cloud computing merger and acquisition flurry validates a lot of the concept. It also shows that the big boys are having to deal with CIOs that want to play the cloud game. The cloud computing genie is out of the enterprise IT bottle and it's affecting software and service delivery. Just think: Now NetSuite has IBM (via Cast Iron) as an integration partner.

Zach Nelson said on NetSuite's earnings conference call:

[There is] a sea change in the services mentality, moving away from complex, costly on-premise implementations to somewhat less costly, somewhat less complex implementations around cloud computing, and it's largely driven by customer demand. [Wipro is] hearing more and more CIOs want to look at cloud based ERP solutions.

For good measure, Nelson added that SAP's move into the full-court BusinessByDesign SaaS press will validate the cloud ERP concept more.

Perhaps these cloud acquisitions could be transformative to large software vendors. IBM could mix Cast Iron with WebSphere and help it scale in large, complicated enterprise implementations. CA can go from managing your data center to being a cloud arms dealer. Perhaps Oracle CEO Larry Ellison even gets SaaS religion and cloud washes everything---once hell freezes over and maintenance revenue streams collapse (there's no evidence of either). To Oracle's credit it refrains from cloud washing. Oracle's statement about Phase Forward was all about the health care with a dash of SaaS without one mention of "cloud." Had Salesforce.com made the same acquisition you would have received 50 cloud mentions in the first 150 words of the press release.

But I digress. Bottom line: The burden of cloud computing proof rests with the large enterprise software folks. Your job will be to distinguish from mere cloud washing and real IT value.

Related: CIO in the cloud: 7 SaaS questions with Flextronics' David Smoley

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