Which is not to say the practice is recommended, since the gap between promise and performance tends to influence the potential for future business. To say nothing of reputation and brand.
But then survival threats do tend to stimulate the imagination. JL
Angus Loten and Kimberly Johnson report in the Wall Street Journal:
Trying to stand out in a hot market--Gartner Inc. expects it to grow nearly 17% to $204 billion this year--some providers use "cloud" in their marketing, sales pitches and earnings reports to include a whole range of services. "Cloudwashing," isn't new. But as more companies consider shifting key business applications to the cloud, mixing cloud with other services is confusing.
As the business world's shift to cloud computing picks up steam, technology companies face mounting pressure from regulators, customers and investors to be more forthcoming about what they classify as "cloud" services.
Cloud-computing companies sell shared access to software or the processing power of their servers, which customers can use over the Internet.
Trying to stand out in a hot market--Gartner Inc. expects it to grow nearly 17% to $204 billion this year--some providers use "cloud" in their marketing materials, sales pitches and earnings reports to include a whole range of services, say senior technology executives and industry analysts.
The practice, which critics call "cloudwashing," isn't new. But as more companies consider shifting key business applications to the cloud, they say mixing cloud with other services is confusing and raises the risk of getting them locked into computing-services contracts they don't want or that don't measure up to expectations.
"Vendors are constantly showing up and trying to sell you everything" as cloud, said Clay Johnson, chief information officer of General Electric Co.'s GE Power & Water. He said it takes "extra work" to determine what are and aren't "true" cloud services, or which services will be around for the long haul. The latter has become a growing concern as software deals stretch to three years or more.
Under current accounting rules, tech companies have wide latitude to define their cloud revenue. But it can be hard to see how providers stack up if a company's earnings report might reflect not only sales of software subscriptions, but also server parts, and maintenance and consulting fees.
"Comparisons are difficult," Kevin Barnes, chief information officer of plumbing-supplies company Ferguson Enterprises Inc., said about sizing up competing cloud services. Often, he relies on talking with a provider's other customers to better determine how much of a vendor's cloud tools reflect "true capabilities," he said.
For those sifting through financial statements, understanding sources of growth is increasingly important. " Analysts always want more detail," said Toni Sacconaghi Jr., senior research analyst for Bernstein. Cloud services are sometimes "nebulously defined," he said.
Many cloud providers incorporate older tools, such as managed hosting services, into their cloud sales numbers. Though often referred to as "cloud," managed hosting and other off-premise computing services don't always provide the same flexible or scalable benefits, said Forrester Research analyst John Rymer.
Hosted services often require users to pay for a set amount of space on a vendor's physical servers, while running business applications they own outright or rent for a fixed rate. Public cloud computing, by contrast, allows them to access applications as needed and pay only for the shared resources they use, much like a utility bill, Mr. Rymer said.
"This is happening at all levels, because organizations are rewarded with higher multiples for cloud revenue," said Ray Wang, founder and principal analyst at Constellation Research Inc.
Figuring out how to book revenue for cloud deals that include hardware, software, service and maintenance is " highly complex," said Aftab Jamil, leader for the technology and life-sciences group at accounting firm BDO USA LLP.
Under generally accepted accounting practices, a company must break out a revenue source in its financial disclosures once it reaches 10% of overall revenue, "so readers can understand those streams," Mr. Jamil said, adding that investors prefer greater visibility to so-called "lumpy revenue."
Amazon.com Inc. began breaking out the earnings of its Amazon Web Services unit last April, reporting more than $7 billion in cloud revenue at the time. That put pressure on other cloud providers to post big numbers, analysts say. Last week, Amazon said the sales of its cloud business rose to $2.4 billion in the most recent quarter, up from $1.4 billion a year earlier.
Amazon declined to comment.
Microsoft Corp., its closest rival, reports cloud sales as an annualized run rate, projecting a single quarter's sales over the entire year, rather than disclosing the actual quarterly figure.
On top of Azure, the company's primary cloud service, Microsoft's cloud-business segment combines public, private and hybrid server tools with more general enterprise services, such as Premier Support Services and Microsoft Consulting Services. It also includes tools that don't always run in the cloud, such as Windows Server.
Last week, Microsoft said its cloud businesses are running at an annual rate that is 70% higher than a year earlier.
A Microsoft spokeswoman declined to comment on the company's cloud-revenue disclosures.
In December, Oracle Corp. posted $649 million in total cloud revenue for the fiscal second quarter, reflecting sales from its human-capital management cloud, enterprise-resource-management cloud and other software- and platform-as- a-service tools. But that figure rolled in sales from the company's Infrastructure-as-a-service segment, which includes legacy managed-hosting services and other revenue sources.
Oracle declined to comment on what services it includes in its cloud-revenue disclosures.
In May 2013, the Securities and Exchange Commission launched an investigation into how International Business Machines Corp. accounted for cloud revenue. Although the investigation was dropped a year later, IBM said this fall that the SEC had launched a separate probe into its accounting treatment of certain transactions in the U.S., U.K. and Ireland, and that it would cooperate with the probe. The company didn't specify the types of transactions the SEC was investigating.
An IBM spokesman declined to comment on the investigations and directed questions to the SEC. The SEC didn't reply to requests for comment.
In January, IBM reported $10 billion in total cloud revenue, of which $4.5 billion was generated by "as-a-service" tools, the company said. The rest came from unidentified software, hardware and other services related to developing cloud systems for clients, according to a spokeswoman.
Many analysts and investors following IBM have "discounted the as-a-service number" in terms of revenue and price, because there's a question if it is truly cloud or "something else in there," Bernstein's Mr. Sacconaghi said. "It's tricky on many fronts."
"Cloud is a growing part of our business," the IBM spokesman said. "As it grows we're providing more clarity around what comprises it."
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