Read the Fine Print Behind the Cloud Mega-Trend

If investors made chatter about hot cloud companies into a drinking game, let’s just say it wouldn’t be safe to drive. From big dogs like Amazon (AMZN), Google (GOOG, GOOGL), Alibaba (BABA) and Box (BOX) to a laundry list of up-and-coming startups, the cloud mega-trend is real and here to stay.


Surveys support this reality, in case you aren’t yet convinced.

For instance, 62% of organizations in a recent BetterCloud survey said that they will be running all of their IT in the cloud by 2020. Joe McKendrick of Forbes put this into context nicely, explaining:

“Of course, all of the participants in BetterCloud’s survey already use cloud, so that should be kept in mind in reviewing these results. Still, it points to a continuing acceleration toward cloud-based systems, which has ramifications for both IT and business leaders alike. Currently, 12% of companies run all of their IT in the cloud, so it looks like this number will quintuple over the next five years.”

Additionally, cloud expert Byron Deeter recently made headlines by indexing 42 public cloud companies and predicting that their total market cap will pass $500 billion by 2020.

As Alex Konrad of Forbes added: “And with ‘28 private “unicorn” billion-dollar startups emerging in the cloud and thousands more behind them, IT could see a tipping point that Marc Benioff and other early adopters have spent years preparing.”

Cloud Companies (and Their Clouds) Aren’t All the Same

But as the cloud sector continues to grow, it also continues to get a bit more messy. The report builds on this distinction between public cloud companies like Salesforce (CRM) and smaller startup counterparts.

“While companies like Salesforce have succeeded on the public markets and educated Wall St. and the non-technical businessperson about cloud software,” Konrad writes, “more than half of cloud revenue comes from startups, the report found.”

The implication: Don’t trust everything you hear regarding large, public cloud providers. As the space gets more crowded, companies large and small are rushing to set themselves apart — just as they first rushed to label themselves “cloud companies” when the buzzword first caught on.

It’s a marketing firestorm, meaning more due diligence is required from investors when sorting out which names offer which services, features, sales mixes and so on.

For example, Tunio Zafer, CEO of pCloud, recently explained that:

“Many big cloud storage platforms also claim to offer ‘unlimited” ‘loud storage, but this isn’t actually the case. For example, Amazon announced its cloud storage platform in March 2015, and its big offering was ‘unlimited’ storage. This sounds great at first glance, but when you look deeper, you find that it’s not quite the case. What providers like Amazon fail to mention is that users can’t store unlimited files exclusively on the cloud. Meaning, users can’t store more data than what their hard drives allow. That’s because these cloud storage companies often view cloud storage as an extra, backup storage space.”

Announcing new features isn’t the only event that should prompt investors to do extra digging; cloud companies can also by sly when announcing new customers. Barb Darrow of Fortune made this point last week in a piece called “For big companies, the question is not which cloud but which clouds” after Google announced HTC as a new customer.

As she explained: “Whenever a cloud provider touts a new customer win, don’t assume this is an exclusive arrangement. Big companies have many constituencies, each with its own cloud preference.” This ties back to the nuance Zafer points out — where one cloud might be perfect and affordable for backup storage, while another is better-suited for sensitive information, for instance.

All in all, the lesson is clear. As with any trend, we’ve moved from hype to clear impact to crowds and confusion. Believe the cloud hype — just don’t believe all the headlines.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

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