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VCs: Don’t mistake cloud computing for cloud opportunity

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Despite a tough economy, technology investors expect to fund more cloud-computing-related technologies going forward, according to new research. More than half of those surveyed by Peachtree Capital Advisors in a report called “Insights on technology investing” predicted investment growth in cloud technology in the next three years. But other findings — that enterprise software and social media categories are on the wane — show that investors might have a circumscribed, even myopic view of how to invest as broadband changes the nature of both computing and the way we live.

This isn’t just about cloud computing; it is about the broader conception of “the cloud,” that fluffy, amorphous concept that can be summed up as the space between client devices and servers. As users connect multiple devices to the web and expect their content to stay uniform from device to device as well as use those devices to connect at any time to their friends and colleagues, we are experiencing a transition not just in IT but in culture. Investors need to stop erecting walls among “enterprise software,” “mobile” and “cloud computing” and instead start thinking about categories that better fit the new world.

With that in mind, let’s hit some of the data. Among respondents who described themselves as “non-cloud computing investors,” 54 percent said they expect cloud computing to remain a leading growth sector in IT over the next three years. Possible hot spots for future investment are data security products that address lingering concerns over entrusting key data to shared cloud infrastructure. Clearly, many businesses remain concerned about the risks of cloud computing, so any company that comes forward to plug perceived holes will be a hot prospect for investors.

Security in this new world needs to span on-premise servers and computers to the sometimes-connected mobile devices everyone now carries. In short, “security” products will need to cover what we now think of as enterprise software as well as our mobile devices in the field and everything in between.

But back to the survey. Enterprise software, unlike cloud computing, is fading as a category, if these numbers are taken to heart. The lion’s share of respondents (67 percent) identified themselves as enterprise software players. But only 4 percent of respondents said the category has high growth prospects.

The characterization of enterprise software as a dinosaur flailing among shiny new cloud technologies is misleading. Drawing a line between enterprise software — as represented by companies like Hewlett-Packard (s HPQ), SAP (s SAP), Oracle (s ORCL), IBM (s IBM), Microsoft (s MSFT), et al. — makes a false distinction. All of those companies are making huge investments in cloud technologies, both in terms of internal, organic development and in their acquisitions. HP’s $10.2 billion acquisition of Autonomy and Oracle’s $1.5 billion buy of SaaS player RightNow are just two recent examples.

Mobility is a hot spot now: The survey findings call the rapid growth of mobile technology perhaps the biggest recent story line in technology. Most of the Peachtree respondents expect that mobility growth trend to continue over the next three years. Two-thirds (66 percent) of self-described mobile investors expect mobile to be a leading growth sector in that period. And more than half of respondents overall expect that to be true.

Again, it’s hard to parse mobility out from the overall cloud-computing phenomenon, a huge part of which depends on the ability of consumers and business users to access their data and applications from their device of choice, whether or not it’s connected to a LAN or the cellular networks.

The Peachtree survey also suggests that tech investors are underwhelmed by social computing: A whopping 88 percent characterized the social media segment (including collaboration) as overvalued. No one felt social media is undervalued. They see this segment as ripe for consolidation in the next three years, noting Myspace’s on-the-cheap acquisition by Specific Media. Myspace sold for $35 million in June. Six years earlier, News Corp. paid $580 million for Myspace. But many would note that says more about a Myspace-specific decline rather than anything about the segment generally. Facebook continues to grow like gangbusters, claiming more than 800,000 users.

Again, these survey findings might show some myopia on the part of VC and private equity investors. The whole big data explosion that most businesses are trying to capture depends on the wide availability of diverse data from many sources, including the so-called Bermuda Triangle of Facebook, Twitter and Google (s Goog). Companies like DataSift and Gnip that wring such data out of Twitter and other social media sources are getting traction.

Meanwhile, 35 percent of those surveyed said they think enterprise software as a category is undervalued.

Peachtree Capital compiled the data after surveying 92 private equity and venture capital firms between June and August.

Photo courtesy of Flickr user yomanimus

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