Monday 29 December 2014

Why our judgement about IT firms shouldn't be clouded

Published 25/05/2014 | 02:30

Visitors at the stand of TripAdvisor during the Madrid's International Tourism Trade Fair
Visitors at the stand of TripAdvisor during the Madrid's International Tourism Trade Fair
Brian Halligan, co-founder of Hubspot

IS the 'cloud' an overused buzzword? Yes. But don't be too harsh on the term: Ireland is doing unusually well in 'cloud' technology firms.

Take Dublin's Silicon Docks. Of 50 notable technology firms located there, 48 could solidly be described as cloud firms. In other words, the main part of the business is through delivering an internet service or executing a function online.

Companies like Hubspot (75 staff and growing), which sells online sales and marketing services, are a classic example. So is online Tripadvisor (35 staff and growing). We even have our own homegrown cloud companies, such as heavyweight payments processing firm Realex (120 staff) or customer relationship service startup Intercom (25 staff).

In reality, the growth of Irish cloud firms – and of the cloud industry in Ireland – is not something that could be described as "cutting edge". It merely reflects consumption patterns of ordinary people and companies.

For example, last week, Spotify announced that it has 10 million paying subscribers (out of 40 million "active" subscribers). They largely come from the dwindling numbers of iTunes downloaders.

Similarly, Netflix goes from strength to strength in Ireland, with an estimated 175,000 paying subscribers that make the remaining DVD stores look imperiled. (Netflix just announced an expansion to six new countries including Germany and France.)

In other words, it's simply easier and handier now for people to access services like this online than by downloading or physical means.

So it's no surprise that many of the world's biggest private investment funding rounds are currently going to cloud-based companies. The ride-booking taxi service Uber is said to be in talks for a funding round of over €500m. Meanwhile, the "scrapbooking" social media firm Pinterest said that it closed a new funding round of €145m, valuing the firm at €3.65bn. (Advertisers love Pinterest, because much of its audience uses it as a giant shopping list.)

This comes right after recently expanded Silicon Docks firm Airbnb closed a €360m private funding round valuing the accommodation-booking outfit at a whopping €7.3bn.

And yet many of the biggest sectors tipped to benefit from cloud innovations have fallen flat on their face. For example, no one has yet succeeded with a commonly-accepted mass market method of mobile payments. Similarly, the healthcare industry – where greater information transparency could literally save lives – also largely refuses to allow the cloud into its core functionality.

In both cases, a combination of security and privacy concerns are probably still enough to keep the cloud at bay.

(In most other industries, despite assertions to the contrary, security and privacy are secondary considerations to convenience and efficiency.)

Moreover, the cloud has dented other industries and wrecked a handful. Both the music and media industries have taken a battering from cloud firms, although the recent European Court Of Justice ruling permitting EU citizens to delete Google links at will could restore some commercial oomph to the value of newspapers' unredacted online archives.

The telecoms business is also reeling from cloud services, with SMS-texting collapsing in Ireland at a rate of almost 30 per cent each year.

And don't talk to the poor old pornography industry about the cloud. From an estimated €75bn of annual revenue in 2006 to a limp €12bn last year, the internet has destroyed most commercial pornography.

Despite these casualties, there is still a consensus that the 'cloud' is just getting started. Industries like education and healthcare must surely stand to benefit from better use of online resources.

Meanwhile, the burgeoning area of 'big data' (another overused buzzword but still a useful denominator) will probably happen mostly through the web. Amazon, for example, is already considering a service that delivers a product to your nearest delivery centre even before you've ordered it – based on a complex array of data predictions derived from your previous behaviour and other crunched numbers.

And Limerick-born online payments duo Patrick and John Collison of Stripe are fond of saying that only a tiny percentage of the world's payments are conducted online, leaving a massive upside for companies in that space.

So the next time you're tempted to diss 'the cloud', pause a moment. There's a lot more to it than just a buzzword.

Sunday Indo Business

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