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Has 'cloud computing' lost its VC luster?

Venture capitalists are getting inundated by pitches claiming "cloud computing" tech, even when the claim is clearly a stretch. Already called the "next dot-com," the word "cloud" should be carefully applied to venture pitches.

I've had a few discussions with venture capitalists of late regarding the assignment of the "cloud" label to start-ups pitching everything from hardware to--believe it or not--downloadable software clients.

It seems that just about every pitch these days is for "cloud computing," and the folks with the money are getting a little weary of it.

Before a Strategy Series dinner on cloud computing I participated in a couple of weeks ago, Lars Leckie of early stage venture firm Hummer Winblad made a point about this. He noted that just about everyone was trying to relate their product or service to cloud computing, and that the label had begun to lose any meaning on its own.

A big part of the problem is the now almost unresolvable definition of cloud computing. How do you define the term? My own definition has shifted over the years, to where I use the term quite ambiguously. It's kind of like that famous old quote about pornography obscenity from the late Supreme Court Justice Potter Stewart. The judge wisely noted: "I know it when I see it."

(Lorie MacVittie of F5 wrote a fabulous post about focusing on the "who and how" rather than "what and where" in "cloud-computing" definitions. I absolutely agree, though I have failed to find words that meet that objective to my satisfaction.)

If forced to give a written definition, I borrow a Cisco Systems' definition that bounds the problem, rather than defines it:

Cloud computing is IT resources and services that are abstracted from the underlying infrastructure and provided "on-demand" and "at scale" in a multi-tenant environment.

With this definition, I can at least say that content sites are almost never cloud computing. It is debatable whether or not something like World of Warcraft is an IT service, but your traditional enterprise and consumer-oriented SaaS applications, your PaaS offerings, and certainly your server and/or storage resources all very much count as cloud computing in this case.

At the very least, this definition is hard for anyone to find too specific.

What this definition fails to do, however, is give guidance to those trying to get at the heart of how a given "cloud" makes money. This is why it has become important to be specific about what kind of cloud service you are offering. Are you pitching Infrastructure as a service? Software as a Service? Cloud infrastructure management?

In fact, those definitions may not be specific enough any more. One example would be Skytap, the development/testing lab cloud offering I covered a few weeks ago. Skytap really would need to define its pitch in terms of "lab as a service," or at least a lab management SaaS application fronting an IaaS offering. Otherwise, the company risks not differentiating itself from something like Amazon EC2.

I plan to study closely how start-ups define and differentiate their cloud business models at next month's Under the Radar: Clarity in the Cloud, where I will be one of the judges.

Under the Radar is a moderated setting in which fully vetted start-ups present their pitches to some of the most knowledgeable judges in the business.

(Previous Under the Radar events have contributed to more than $1.3 billion in funding raised for participating companies in the last three years alone. Companies like Flickr, Animoto, and iLike have benefited from past events.)

I looked through the initial list of companies announced last week, and I have to say that I am impressed with the problem sets being addressed by entrepreneurs today. However, I'm also a little unsure how others are going to differentiate themselves in increasingly crowded markets.

The plethora of storage businesses are a great example of what I am talking about; if you read closely, there are actually a variety of products and services being offered under that moniker among the participants. Thus, defining yourself as storage-as-a-service or "cloud storage" may just not be enough any more.

I'm hoping to hear from a few friends in the VC industry in the next few days with advice on how to use (and not to use) the cloud computing moniker in pitches for funding or acquisition. If you have any ideas or advice, pitch them to me in the comments below. I'll include the good ones in a follow-up post on the advice that I receive.

None of this is to say that cloud computing is not an important market for entrepreneurs today or that you should stay away from starting cloud businesses. However, it's time to recognize that the market is maturing and that differentiation is more important than ever. Being "cloud" just isn't all that interesting any more.

Follow James Urquhart on Twitter.