Lessons From The Demise Of A Cloud StartupLessons From The Demise Of A Cloud Startup

Amid the growing interest in cloud computing, Coghead's collapse provides a reality check. SAP is providing a safety net for Coghead's intellectual property and its employees, but Coghead's customers are left to fend for themselves.As more developers and IT pros contemplate a move into the cloud, vendor failure is one of the risks they face. Coghead issued a letter to customers earlier this week advising them that it had terminated operations and, effective immediately, was discontinuing license agreements. Coghead is giving customers until April 30 to move their data and applications off its platform.

Coghead seemed to have everything going for it -- venture funding, a few years of experience, thousands of users, and a platform-as-a-service that seemed well suited for IT departments looking to lower costs.

What went wrong? In a second letter to customers -- one in which he revealed that SAP was acquiring the company's assets -- Coghead CEO Paul McNamara blamed the economy. "Faced with the most difficult economy in memory and a challenging fund-raising climate, we determined that the SAP deal was the best way forward for the company," McNamara wrote in a note that went out yesterday.

Coghead customers now have to scurry to relocate their hosted applications. They must move apps developed on Coghead's Adobe Flex-based platform to another PaaS provider or bring them in-house, underscoring the pitfalls of proprietary cloud services. "Customers can take the XML out that describes their application, but the reality is that it only runs on Coghead, so customers will need to rewrite their app with something different," McNamara said.

Coghead isn't the first cloud startup to fail, and it won't be the last. Storage-as-a-service vendor Nirvanix was forced to do damage control after MediaMax -- also known as The Linkup and spun off from Nirvanix's parent company, Streamload -- closed last August, leaving some customers without access to their data. And CRM-as-a-service vendor Entellium was shut down, and its assets were acquired by Intuit, after its CEO and CFO were charged with fraud last fall.

It doesn't help that Coghead and SAP did a poor job of communicating Coghead's abrupt end, sending two messages, a day apart, leaving customers in limbo about the company's acquisition by SAP. Even now as I write this (on Feb. 20), there's no mention on Coghead's Web site that it's ceasing operations, other than some fine print in its license agreement.

So Coghead serves as another example of what can go wrong. IT pros tend to be cautious of doing business with startups, and cloud startups carry the added worry that your data resides on their servers, outside of your reach. Thus, it's important for prospective cloud users do two things: one, exercise due diligence by checking customer references, meeting company management, asking about funding, and so on; and two, have an exit strategy in case your cloud vendor, like Coghead, closes its doors.