Skip to content

Virtualization ‘versus’ cloud: is there even a versus?


If 2008 weren’t enough already, buzz around cloud computing startups is reaching deafening levels this year. On the one hand, large enterprises are taking the opportunity to reduce capital expenditure during the ongoing economic disruption. On the other hand, as abstract thinking around cloud computing crystallizes into concrete action, more and more startups leading with a cloud computing message are coming out of the woodwork.

Longworth follows a research-based approach to early-stage technology investing, where we form market maps and investment theses for particular market segments as we investigate them for startup opportunities. For most of last year, we put qualified investment opportunities with a ‘cloudy’ pitch in the same bucket as our those with a pitch around virtualization. There was a lot of messaging overlap last year between the two areas to be sure, because virtualization projects were being rolled out in a number of enterprises, and the ultimate goal of several of these projects was to build a private cloud. Fundamentally though, cloud computing, while being enabled by virtualization, is a separate area of investigation in our investment research (I had been doing some thinking about cloud computing at my previous gig).

Photo Credit: Steven Pinker


In 2009, cloud is finally (and naturally) breaking out from virtualization and coming into its own as a distinct segment within our startup tracking processes. Because we’re actively investing from our recently-closed third fund, I’m going down the list of companies we used to track as virtualization startups and in some cases, reclassifying them as cloud computing startups. This reclassification has been an illuminating exercise in itself because I’ve had to articulate why I am moving startups from one list to another. Much like this (somewhat tongue-in-cheek) list of what can’t be cloud computing, here are some cues I used during this reclassification:

  • Pitch. Does the company mention ‘virtualization’ at all in its primary value proposition, aka pitch? If yes, then its offering is virtualization-focused rather than cloud-focused, although it may be an enabler for an enterprise cloud. Note that I don’t automatically classify companies that mention ‘cloud’ as cloud computing companies because even a lot of virtualization-focused startups will use cloud to gussy up their pitches.
  • Buyer Profile. Can a tech-savvy individual contributor within an organization at a departmental level ostensibly get started with the company’s offering, or does centralized IT need to get involved? The former would qualify as a startup with a cloud computing offering.
  • Purchase Method. Does a customer have to undergo a traditional enterprise software purchase process, with purchase orders and heavy-touch, potentially lengthy sales engagements, or can they whip out a credit card and get set up in less than an hour? The latter would qualify as a startup with a cloud computing offering.
  • Cloud Economics. Does the offering adhere to cloud economics, i.e. ‘pay-for-what-you-use’, even if it isn’t pay-as-you-go spot pricing? Does it include agile system provisioning as well as de-provisioning? If not, then the startup doesn’t qualify as a cloud computing vendor.

Not all of these cues cleanly demarcate the cloud startups from the virtualization startups. Sometimes I’ve had to use my own judgment, but the cues above do push me closer to an answer. 

No doubt I’ll continue to discover other cues as I proceed down our list of startups. To entrepreneurs and others in the know reading this, are there any big ones I missed? If you’d like to suggest some, please join the conversation in the comments.

3 Comments leave one →
  1. 03/23/2009 7:28 pm

    Yo.. why not if “does centralized IT need to get involved”? What if it’s a private-cloud-in-a-box targeted at at centralized IT ops in an enterprise for them to serve to their dept/whatever-level customers?

  2. 03/23/2009 9:34 pm


    See — this is why I said the virtualization-cloud split isn’t always clean/algorithmic and often needs a huge dollop of judgment. Cloud-in-a-box service providers are a new delivery role enabled by cloud computing, complete with their own new business models–which I’ve written about in an earlier post–so they would fall outside the boundaries of the traditional enterprise software procurement process we all love to hate.

    But speaking more directly to your question, which call I would make will depend on a number of factors, but going by your description alone (which sounds an awful lot like Doyenz, by the way) I’d probably go with cloud over virtualization because some measure of cloud economics holds true and because they don’t use the v-word anywhere in their pitch.

    Thanks for sticking with me though as I put on my Sorting Hat and sort out the startups!

  3. 04/17/2013 10:00 am

    Hmm is anyone else encountering problems with the pictures on this blog loading?
    I’m trying to determine if its a problem on my end or if it’s the blog.
    Any feed-back would be greatly appreciated.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: