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Greenberg: Cloud bubble was bound to burst

I learned firsthand about the power of this thing called the "cloud" back in 2009 when I helped run a small independent research firm.

We needed encryption and we were using a cumbersome EMC product for our small group of a few dozen clients. It was a powerful product, but the clients hated it because they had to install something on their computer. We hated it because between licenses and service costs, it was way too expensive and overkill for our small business. It was also technologically cumbersome.

Then I started searching for alternatives and I found Watchdox, a private company that did exactly what we needed at a fraction of the cost with none of the headaches. Our clients loved it, too.

Lucky336 | iStock | Getty Images

That was when the light bulb went off in my head about this thing called "the cloud"—and how disruptive it would and could be. Instead of having to "deploy" software, we just incorporated it in our product. At the time I figured Watchdox had discovered the secret sauce.

Since then, so has everybody else, and that could only mean one thing: The "cloud" would get discovered by Wall Street, and you know what that means: Exploit it for all its worth.

The cloud very quickly became all consuming. Suddenly everything was the cloud, and every even-remotely connected cloud play was about to get the "can't turn down" knock-at-the-door from investment bankers eager to cash in on the trend.

As Oracle CEO Larry Ellison bemoaned at a 2009 earnings day:

"I've objected to the term 'cloud computing' for a long time because so many people use it to mean entirely different things. It's as if every color was called red. It's confusing. Look at the sky. It's this beautiful shade of red. Look at the ocean. It's a fantastic shade of red. It's a different shade of red than the sky, but it's still red."

The word "cloud" became indistinguishable between the genuine cloud companies, like the server space rented out by Amazon (and now any and every company that has extra server capacity— without question a commodity business) and the software companies that used the cloud, like Salesforce and Box Holdings, which just delayed its IPO.

It didn't matter what the software was used for; the buzzword "cloud" would drive its stock, regardless of profits or even how much of its business is tied to the cloud. Cloud plays gave new meaning to momentum.

Reality: On Wall Street that leads to one thing: excess, and that's what has happened to these stocks lately. They were the latest and greatest. Now they're just another group of software-like companies that will ultimately have to prove themselves with their ability to (drumroll!) make money.

—CNBC Contributor Herb Greenberg is a commentator at TheStreet.com and editor of Herb Greenberg's Reality Check. Follow him on Twitter @herbgreenberg and Google.

Subscribe to Herb at http://www.facebook.com/herb.greenberg.

Questions? Comments? Write to herbonthestreet@thestreet.com.

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