2010 the year of cloud-computing...M&A

Cloud computing is still more attractive to venture capitalists than it is to enterprise IT buyers, and that's unlikely to change in 2010. As IT buyers warm to the idea and implementation of cloud computing, 2010 is going to prove to be a very big year for cloud-computing M&A as big-fish vendors like VMWare, Microsoft, IBM, and Oracle round out their cloud product portfolios with little-fish innovators.

Some, like Oracle CEO Larry Ellison, suggest that cloud computing is simply a fad, one that attempts to solve many of the same problems that SOA, EDI, etc. already attempted to fix.

Tell that to the buyers. Gartner expects the cloud-related SaaS market to top $8 billion in 2009, which suggests that real customers paying real money.

They may not be paying enough, however, to support the mushrooming cloud vendor marketplace. Not yet.

Industry insiders are predicting a shakeout as pre-recession venture funding runs out for many of the early cloud vendors, forcing them into the arms of buyers or bankruptcy courts.

This is the inevitable separation of wheat from chaff, and it's a very good thing for an industry that has been long on hype and short on delivery to date.

But don't confuse the hype with vaporware. And don't for a minute think that any of the big (or small) vendors has a complete offering yet. As IDC research director Dan Yachi posits:

Cloud computing is more than just buzz. It is here to stay and is expected to take increasing shares of total IT spending worldwide. From a VC perspective, the even better news is that cloud computing is still far from maturity. There are many technology gaps that are not yet filled, especially in the areas of cloud enablement, management, monitoring, and security. In particular, VCs can find investment opportunities in start-up companies that develop solutions for hybrid cloud, which is expected to experience increased demand over the coming years.

Cloud computing offers real advantages, and has attracted a significant array of pent-up demand. Start-up vendors like Cloudera, VMOps, Rightscale, and others are inundated with requests for pilot projects as enterprise IT dips some very big toes into the cloud-computing water.

Indeed, it is start-ups like these that will help bridge the gulf between cloud hype and cloud practice in 2010, as the big vendors round out their offerings with the start-ups' technology.

Who will be bought? Those that solve real-world IT problems, not simply those that offer enterprises the ability to build private clouds or give them an on-ramp to public clouds.

Take VMOps, for example. The company's product suite enables service providers and others to build out private clouds. Where it becomes particularly interesting, however, is in the details.

While it sounds great to build a private cloud within an enterprise, the reality is that its resources will be funded by a number of different groups. There's no such thing as a common pool of funding in big enterprises. Among other things, VMOps has management tools for handling billing/resource allocation within private cloud deployments.

This sort of real-world understanding makes its cloud tools much more practical and, hence, much more interesting than those from competing vendors that may solve the technical difficulty of building a cloud but overlook the practical problems of managing it on a day-to-day basis.

Or, as Appiro predicts for 2010, "The real innovation will be in the business of cloud computing, not the technology."

This is why 2010 will be the year when the big vendors buy up innovative start-ups, in terms of both technology and business acumen, that help to make cloud computing reality, not theory, as cloud computing leaves the labs and becomes accepted practice in forward-looking enterprises.

It's a trend that should make enterprise IT very happy...and venture capitalists even happier.