If you are a Silicon Valley investor, then there is no need to read on. You have every right to continue to laugh all the way to the bank.

The recent acquisition of Yammer by Microsoft for an eye-popping $1.2 billion (that’s a reported 50x-plus revenue multiple, for those of you keeping score at home) seems a bit like history repeating itself. Unlike many startup CEOs in this new wave of enterprise software innovation, I have lived through several technology booms and busts. And just like in the past, the response to this acquisition comes from two extremes.

On the one hand, you have the other Valley-bred contenders who claim that an acquisition like this is validation of a new wave of enterprise “toys” that are driving disruption and innovation in old, stodgy markets (in this case, enterprise software). They, and their investors, are hoping that they, too, can get a wacky valuation based on their number of users and virality (today’s version of “eyeballs,” anyone?) in order to secure an exit before the music stops.

On the other hand, you have the paranoid bubble watchers, who see a rich acquisition like this as validation that everything might be out of whack again in Silicon Valley.

From my experience, the truth lies somewhere in-between. I believe that there is, in fact, an exciting wave of innovation happening in enterprise IT right now. New mobile devices, the cloud and open source offer amazing opportunities for companies to lower costs, raise productivity and delight end-users.

But despite what you might hear from VC-funded marketing departments that claim that there is a revolution of empowered, torch-wielding users banging down the doors of IT departments, my experience at Alfresco tells us something quite different. Lasting change and innovation is actually being ushered-in from the very place Silicon Valley least expects it: the beleaguered IT department itself.

So, why all the hype from these disruptive toy companies around the ‘consumerization of IT’ and the angry mob of end-users? Because in the make believe land of VC valuations and strategic acquisitions (where value is in the eye of the acquirer – MSFT truly does have a $50B money tree) getting free users and having viral features to get more free users currently equates to value. But is that really lasting value? And is that really innovation?

It turns out that we actually have a parallel company in Silicon Valley that was born at the exact same time and presents an interesting case study in contrasts. Box.com and Alfresco were founded in the same year, 2005. Box took the end-user approach, creating a simple file sharing service in the cloud. Alfresco started selling to IT, by using open source as the disruptor. Here’s what has happened so far:

  • Box has raised 8x more VC money than Alfresco (Box has raised $162m, Alfresco has raised $20m – each from A-list Silicon Valley firms)
  • Alfresco has generated at least 3x more subscription revenue than Box over the 7 years (Alfresco has sold more than $160m of subscriptions over it’s lifetime – Box is likely less than 1/3 that)
  • Box has 7 million users and if they are anything like Yammer, probably far less than 1 million paid users. Alfresco has over 6 million users, 70% of which are paid-for by enterprises.
  • Box manages over 300 million files. Alfresco customers manage over 3.3 BILLION files globally
  • Alfresco’s open source model enables IT and developers to contribute innovations in real-time.

The big difference: Box mainly sells to end-users and Alfresco mainly sells to IT. So I ask you – who is ushering in real innovation in the enterprise? If you measure it by revenue, files managed or return on investment, it’s no contest. If you measure it by users, maybe it is the enterprise toys.

My view is that IT is getting a bad rap because it serves the valuation interests of the hyped-up, enterprise toy “start-ups.” These may indeed be cool new technologies that will have a positive impact on the enterprise, but let’s give IT some credit for bringing these into the enterprise in smart, thoughtful ways that empower end-users while at the same time contain company risk.