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Around the time the Facebook IPO disappointed Wall Street and shares in Zynga shed more than half their value, the VC herd lost its infatuation with social and decided enterprise was the place to be. As Wired noted in January, the top seven enterprise deals of 2012 amounted to more than $600 million in funding, lured by the post-IPO performance of enterprise plays like LinkedIn and Eloqua.
Now, "bubble" is a loaded term, and no one should confuse today's levels of VC investment with the manic excesses of 1999. But there are still bubblish signs, not the least of which is the size of some of the rounds. For example, we're still wondering what the cloud code repository GitHub plans to do with the $100 million Andreessen Horowitz handed it a year ago.
Then there are the astronomical developer salaries we've all heard about, which remind me of the desperate competition for Java programmers during the dot-com bubble. More generally, a whiff of the old arrogance has returned. I cringe when I hear the implication that Silicon Valley entrepreneurs are so much more important than ordinary humans.
Last but not least, the VC shift to enterprise has occurred at a time when enterprise IT spending is fragmenting. Are too many new vendors chasing big enterprise deals that are increasingly unlikely?
I asked that question at a recent roundtable event that featured leaders of four enterprise SaaS startups: GitHub, Mixpanel, New Relic, and Stripe. The answer, which came back loud and clear, was that these companies believe they are geared to the new, less centralized IT spending.
In particular, because the four companies in question are SaaS plays, they can follow the model of "sneaking in" to the enterprise pioneered by Salesforce. As New Relic founder and CEO Lew Cirne said, "We have two customers paying us $1 million a year that started at $400 a month." Moreover, all four startups are examples of dev-to-dev rather than b-to-b plays. Developers are making the initial buying decision under the radar of central IT purchasing.
IDC, among others, has predicted that cloud is where the growth lies in IT spending. Also, that strategic spending decisions will increasingly fall into the hands of marketing departments and lines of business, many of which are turning to outside providers that can provide better, faster solutions than internal IT can. Obviously, open source enterprise software vendors also offer low risk to the customer: Try before you buy and pay for professional services or enterprise editions as you get more serious.
All this still begs the question: How big is the enterprise pot of gold? According to Gartner, $297 billion will be spent on enterprise software this year, but SaaS will amount to only $14 billion. And open source? Red Hat, the most successful open source software company ever, just crossed the $1 billion mark last year -- 19 years after it was founded.
There's some indication that reality is setting in. Last week, Ben Horowitz warned that the capital market has changed -- and startups must be prepared for tougher fundraising. The bubble, such as it was, may already have floated off.