1Mby1M Incubation Radar 2010: Standing Cloud, Boulder, Colorado

Standing Cloud is an application deployment and management platform for the cloud and can be used to build websites and webapps. The platform is built in Java and is currently deployed on Rackspace and Amazon EC2 cloud servers. Further, the company offers more than sixty open-source applications that users may test-drive or install for permanent operation. It monitors and backs up applications and aims to offer seamless portability from one cloud service to another, ensuring that there is never any downtime by giving control back to the user.

CEO David J. Jilk is a serial entrepreneur. Prior experience in application management includes Xaffire, a privately held company that monitored application performance by capturing, storing, and indexing all Web server traffic. Xaffire was acquired by Quest Software in 2005. Jilk also founded Wideforce Systems, which had a product similar to Amazon’s Mechanical Turk, a crowdsourcing marketplace, in 2001.

Standing Cloud, which was founded in 2009 and is based in Boulder, Colorado, had its genesis in a series of discussions between Jilk and Brad Feld, the managing director of the Foundry Group who recently did an interview on the blog as part of the Seed Capital From Angel Investors series, about developer tools and their potential convergence with the new cloud/utility computing paradigms. Initially, the company intended to offer both development and deployment tools in an integrated platform, but within a few months it became clear that the deployment and management components were both a bigger opportunity and easier to address. The team further realized that while IT professionals working on complex applications were being served reasonably well by RightScale and others, end users and their developer consultants were not being served at all and couldn’t take advantage of the cloud.

Standing Cloud’s platform is offered in two versions, Community (free) and Business ($19.95 a month, plus cloud charges). With both versions, users can have unlimited application trials with no cloud account required, host up to ten applications, and receive monitoring, backup, and e-mail support. The applications to test-drive and install include Alfresco, Drupal, WordPress, LimeSurvey, Phorum, and many others. The difference is that the Business version, designed for less technical users or those with no IT support, hosts the applications on a cloud account that Standing Cloud creates for the user. With the Community edition, users host their applications on their own accounts. Cloud charges vary depending on bandwidth fees and whether Linux or Windows is used. For Rackspace, they range from $0.015 to $1.08 hourly, and for Amazon, they range from $0.085 to $1.60 hourly.

This model will change, as the company matures, to a monthly fee per application deployed, with additional fees for value-added capabilities such as e-mail deliverability enhancement, high availability backups, detailed monitoring, and so forth. For commercial applications, the monthly application fee will be a revenue share with the application provider. Application fees will vary depending on the scale at which the application needs to operate (a few users a day, hundreds of users/readers per day), and will range from $1 a month to hundreds per month depending on the situation. A typical small business deployment might cost about $20 a month. Standing Cloud aims to make its offerings comparable to or less expensive than most commercial alternatives while providing greater value.

Standing Cloud’s goal is to “substantially resegment” the single-digit- billions hosting services market, which it considers a good proxy for its total available market. It divides the market into application category (top segments are CRM, CMS, and education); individual application (e.g., SugarCRM); and user skill level, which is the most interesting segment for the company. According to Standing Cloud, “the highly technical user is addressed by IT tools like RightScale and Kaavo. The novice is somewhat, although not entirely, addressed by pure SaaS systems. But the technically curious (limited skill set but not afraid to try things) and technically savvy (some skills and knowledge but don’t really know how things work) are not addressed – they expect more flexibility than SaaS gives them without really being able to use the technically-focused tools.”

Because the original intent was to provide an open developer tool set in the cloud, Standing Cloud initially viewed companies such as Aptana, Wavemaker, Force.com, and Longjump as competitors. But the approach has evolved considerably, as described above, and the company is no longer building a complete developer tool set. Rather, it has built a system that aims to make application deployment and management easier. Once this new approach was established, Standing Cloud viewed companies like RightScale and Kaavo as competitors, but more recently also established players such as SugarCRM.com and hosting providers such as MediaTemple and HostGator.

To date, the company has raised $2 million, which was invested by Foundry Group in four equal tranches in January 2009, October 2009, January 2010, and May 2010. Standing Cloud wil be closing a $3 million Series B this fall. Foundry Group has committed to fund this full round, but the company is also talking to a small set of potential outside investors to assess interest. Foundry Group is the ideal investor because, says Standing Cloud, they understand very early-stage companies better than any VC firm today. As an early-stage company, Standing Cloud’s revenue stream is very small. It has just recently begun to charge for application hosting and has about sixty customers who are running applications of one form or another.

As for an exit, the first step is to find a repeatable way to grow revenue and to establish that the economics of the revenue can be profitable on a per-customer basis. If, says Standing Cloud, it can do that, then either additional investment or acquisition is viable. That being said, the cloud market is moving fast, is heavily hyped, and bigger players are entering quickly, all of which suggests that consolidation will occur over the next few years. Standing Cloud believes that building partnerships a good way to build the business along with relationships that could lead to acquisition. The company has no real interest in a public offering.

Recommended Reading
Deal Radar 2010: Xvand
Standing Cloud Gives You One-Click App Installs Across Multiple Hosting Providers (overview from TechCrunch)

This segment is a part in the series : 1Mby1M Incubation Radar 2010