10 Hot Cloud Startups to Watch

After evaluating more than 150 new cloud ventures, here are the top 10 cloud startups. These companies are shaping--or have the potential to shape--how the cloud computing market will evolve.

When we requested suggestions for cloud startups to evaluate in order to come up with the CIO.com Top 10 list, we received more than 150 nominations. After reviewing the nominations and getting your input, we narrowed the list down to the 10 most promising.

The Top 10 mixes track record with potential. Some startups, such as Aryaka Networks and HyTrust, are more established and have long lists of customers wins. The list also includes more recent startups that are included more for their potential than their current status in the market. Several of these newer companies are helping determine just how the cloud computing market will evolve. They include dinCloud, Nebula and SaaS Markets.

[Related: The Best (and Worst) Countries for Cloud Computing]

The process for this roundup was a little different than in the past. After the nominees were narrowed down to 25, the list was posted at Startup50 and then we let readers vote. After more than 4,500 votes were cast, we finalized the top 10 list. However, voting was weighted at only 25 percent of the overall score. Equally important were pedigree of the management team, VC funding and just how pressing the pain point is that the startup addresses. Yet, most of the top vote-getters ended up in the final roundup (7 out of 10).

We want to take the Top 10 list a step further. In a week or so, these startups will be reordered and ranked (they are in alphabetical order now) based on voting, funding, strength of the management team and several other factors.

If you feel some startup was snubbed, you also have the option to write one in. If any of the write-ins get enough support, we may expand this list by one or two and include them when we release the final rankings.

[More specifics on the selection criteria and weighting]

As votes were tabulated votes, some companies, such as Nebula, are included here despite it not being on the original list of 25 nominees. Other impressive startups that weren't in the initial batch of 150 include RiverMeadow (cloud migration), InverCloud (PaaS) and Oxygen Cloud (cloud storage and collaboration).

We also learned of a few stealth-mode startups to keep an eye out for, such as Symbolic IO (storage). On paper at least, there's an impressive batch of startups getting ready to emerge from stealth-mode soon.

With those caveats out of the way, here are 10 Hot Cloud Startups you should watch (in alphabetical order).

1. AppZero

AppZero, cloud startup

What they do: Help companies migrate server applications to the cloud.

Headquarters: Andover, Mass.

CEO: Greg O'Connor. He previously served as founder and president of Sonic Software, acquired in 2005 by Progress Software.

Founded: September 2010

Funding: $10 million in angel funding from Covington Capital and private investors.

Why they're on this list: Moving applications from traditional IT systems to the cloud isn't easy. AppZero encapsulates an application and its dependencies in a "virtual application appliance," without a virtual machine (VM). The result is an application that is flexible, "hypervisor-agnostic, cloud independent, and fast." Current customers include Pabst Blue Ribbon.

AppZero also staged a solid push in Startup50 voting, winning the overall competition with 17 percent of the vote total. Why does that matter?

What voting proves to me is that the startup is focused enough on marketing and PR to effectively get its message out. It also shows that the message resonates well enough to entice third-parties to support it. If you think this is trivial, you're forgetting that plenty of technically superior startups have failed over the years because they failed to connect with prospective customers.

Market Potential and Competitive Landscape: Gartner predicts that the cloud Infrastructure-as-a-Service (IaaS) spending will exceed $72 billion, (42 percent CAGR) by 2016. Competitors include companies PlateSpin (which is now part of NetIQ).

2. Aryaka Networks

Aryaka Networks, cloud startup

What they do: Provide cloud-based WAN optimization and application acceleration services.

Headquarters: Milpitas, Calif.

CEO: Ajit Gupta, who previously founded Speedera and served as its President and CEO until it was acquired by Akamai for approximately $500 million.

Founded: November 2008

Funding: The company has raised $45 million in three rounds of funding. The most recent round was a $25 million Series C led by InterWest Partners, with participation from Presidio Ventures, a Sumitomo Corporation Company, and existing investors Nexus Venture Partners, Trinity Ventures and Mohr Davidow Ventures.

Why they're on this list: WAN optimization is typically too costly for the middle market. Aryaka zeroed in on this problem and determined that the best way to drive down costs and democratize the technology was to deliver WAN optimization as a service.

Aryaka first built a delivery network comprised of globally distributed POPs. Enterprise locations connect into the Aryaka network over existing Internet links (or using a direct L2 connections) to one or more POP. Provisioning can be accomplished in minutes -- rather than days or weeks as with hardware-based solutions.

To boost application acceleration, Aryaka runs TCP optimization technology, as well as bandwidth scaling and application-specific proxies. Aryaka also provides access to Internet-based SaaS and cloud services, which help customers avoid middle-mile congestion problems that Internet-based connectivity solutions experience.

Moreover, Aryaka has a solid management team. CEO Ajit Gupta Founded Speedera and sold it to Akamai for $500 million. The management team has a solid track record in the traffic acceleration space. Aryaka also finished second in Startup50 voting with more than 12 percent of the total.

Market potential and competitive landscape: According to IDC, the WAN optimization market should have topped $1.3 billion by the end of 2012. There are some major incumbents in this market, though. Riverbed owns about 50 percent of the market, while Cisco, F5, Blue Coat and Silver Peak are all formidable foes.

That said, the IT market as a whole is slowly moving away from box-heavy infrastructures -- the delivery model of the above providers -- and to services. Moreover, the middle market is grossly underserved by existing solutions, and even many large enterprises are reluctant to deploy hardware at branch offices, which will greatly benefit from a service like this.

3. Blue Jeans Network

Blue Jeans Network, cloud startup

What they do: Develop cloud-based videoconferencing tools that bridge various available services.

Headquarters: Mountain View, Calif.

CEO: Krish Ramakrishnan, who formerly served as CEO for Topspin, which was acquired by Cisco in 2005. At Cisco, he served as GM of the Server Virtualization business unit.

Founded: November 2009

Funding: The company has raised $48.5 million from New Enterprise Associates, Accel Partners and Norwest Venture Partners.

Why they're on this list: Today, various videoconferencing systems do not interoperate. Cisco videoconferencing units don't talk to Polycom which don't talk to Google which don't talk to Skype and so on. Imagine if this were the case with telephony. If you were a Sprint customer, you could only talk to other Sprint customers. If you wanted to talk to someone on AT&T or Verizon, you'd need to download special software.

[Related: Videoconferencing in Action: From Skype to 3D Holograms]

Blue Jeans Network leverages the cloud to turn videoconferencing calls into a "meet me" service, where each party dials into the videoconference from whichever system they prefer to use. The end point hardware becomes irrelevant -- kind of like how the handset is irrelevant when placing a call.

On its roadmap, Blue Jeans intends to eventually take users from the audio-only calling market and shift them to video calls. Customers include Facebook, Match.com, Foursquare and the Sierra Club.

Market potential and competitive landscape: According to Wainhouse Research, the videoconferencing infrastructure market represents a $700 million/year market. However, this is a crowded space. In addition to incumbents like Polycom and Cisco, cloud-based newcomers, such as Join.me and FuzeBox, will challenge Blue Jeans. That said, Blue Jeans is the only tool I'm aware of that stitches an array of conferencing services together.

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