The enterprise is sexy again. While big-dollar investors for much of 2012 chased after the likes of Groupon, Zynga and even the colossal photo share failure of Color, investors are once again turning to the enterprise world as a more lucrative place to build a business.

Carl Rydbeck, vice president at investment firm Crosslink Capital, said that his company has investors focused specifically on both consumer and business markets, and that the firm does not pick and choose only one or the other. “That said, I think there are lots of reasons to be excited about enterprise right now,” he said.

“There’s more innovation there right now than there has been in a long time, both in terms of business models, like SaaS, freemium and recurring revenue, as well as technology. Some of these changes aren’t new, but they’ve become mainstream over the past couple of years, along with cloud.”

Crosslink Capital’s most famous investments were decidedly consumer: Pandora and Tivo. But the firm also recently invested in DataStax, the NoSQL company based on Cassandra. And while this investment was a tough decision at first, the results and growth have been extremely encouraging for Crosslink.

This investment interest is somewhat cyclical, with the 2000 dot-com boom being the last major era of enterprise investment enthusiasm. This time, however, things have changed, said Rydbeck.

“I think there’s renewed recognition now that the enterprise markets are enormous in terms of the aggregate dollar amounts that are spent,” he said. “At that point [in 2000], there were less consumer dollars spent online, so building out IT infrastructure was naturally a huge piece of the bubble. If you look at the whole economy, consumer markets are bigger than B2B markets, but the online IT market during the dot-com boom consisted of a lot of companies building a lot of infrastructure ahead of consumer demand. In the mid 2000s, e-commerce and the consumer Internet continued to grow and caught up, and the investors realized how big those markets were, leading to a lot of investment.

“I think in large parts of IT, there was a dot-com or telecom bust that soured investors on certain enterprise markets for a while. Meanwhile, the consumer Internet continued to grow and all these consumer plays got enormous traction, but it’s overly simplistic to say that’s it’s a back-and-forth cycle. Another key driver of enterprise investing these days is that for the most part exit multiples in the public markets have been very attractive.” In layman’s terms, that means enterprise companies that make it to the stock market earn lots of money for their investors, or a multiple of their initial investment.

More money in the enterprise
Those multiples have certainly been lucrative even before deals hit the public markets. Heroku’s US$250 million acquisition by Salesforce, and the frenzied investment into new Big Data solutions, are results that could only exist in a business world; Big Data isn’t exactly relevant to the consumer. And Big Data is another area of enterprise technology that’s booming thanks in part to NoSQLs and the Apache Hadoop project.

Shanley Kane, director of product management at Basho (the company behind NoSQL key value store Riak), said that the real reason to be in the enterprise market is fairly obvious: It’s the money. “Our average deal size is much higher than some of our competitors,” she said. “We start out in the six-figure range in terms of what our average deal size is. The number of startups that can afford that are close to zero, but that’s just a starting deal in the enterprise. Enterprises spend millions if not billions on their infrastructure.”

Herb Cunitz, president of Hadoop-focused company Hortonworks, said that the cyclical nature of investment interest in enterprise businesses is nothing new. Instead, what’s new this time around is the data available. “I’ve been in the industry long enough to see this come and go multiple times,” he said. “We are seeing that again.

“Hadoop is one of the technologies that is driving this, but it’s not the only one. It’s simply a function of the market, and the availability of data that didn’t exist two to three years ago, and what innovators are doing to leverage that info and make smarter and faster decisions. It’s driving change in the data market, and it clearly sits on the enterprise side.

“I do believe it is making a change, and if it plays out as we all think it will, this will have very far-reaching implications on how many companies go to market, what operating systems and data platforms and warehouses they use, as well as how end-user companies use it in their enterprise to gain advantage. There haven’t been many of those transformational technologies for a couple years.”

Combine this with the lackluster showings of recent IPOs for Groupon and Zynga. While both companies saw early boosts in stock price, those same stocks are now a fraction of their former selves. Groupon, once trading above $25 a share, is now around $4.50, while Zynga’s former high above $15 per share is now a long way away from its price of around $2.50 as of this writing.

Meanwhile, enterprise-focused businesses are doing very well. AppDirect, an online business application store. Daniel Saks,
president and CEO of AppDirect, said that the business of enterprise software is on fire again thanks to innovation in what have traditionally been rather dull markets.

“In the past, enterprise wasn’t hot, and it really sucked,” he said. “Then we saw all these companies like Rackspace and Box who bring this great attitude toward the enterprise space, and we wanted to take it a step further.”

To that end, said Saks, his company created an app store for business SaaS applications. AppDirect gives users a single place to pay all their SaaS bills, and it gives service providers such as Verizon or T-Mobile a generic app store to brand and open to their users.

“There are so many cool development tools today. There’s Heroku and a lot of cool platforms; a lot of developers don’t want to work in these restrictive ways,” said Saks. That’s because developers in enterprises now have one thing they’ve never really had before: choice. While vendor lock-in was all the rage for development tools in the 1990s, today’s development tools tend to be open source and interoperable, allowing developers to use what they want, when the want. That also means enterprises themselves aren’t locked in to old platforms and systems that could be dragging down productivity.

The ghost of Color still haunts
But even without a failed IPO, consumer startups are struggling in the current economy. A year ago, a new mobile phone startup called Color was hitting home runs in the venture capital community, and shortly thereafter, in the media. Before the company’s product had even launched, Color had earned $41 million in investment capital.

Just prior to launch day for Color, news agencies around the world foretold the coming of a messiah-like new company, without any information on what it was the company did. Local TV news stations ran stories about the forthcoming launch of a mega-startup, and non-technology-related outlets predicted Color would change everything for consumers.

Then Color launched. The application allowed users to share photos based on their location. Take a photo of the White House, and anyone who stands nearby can see it. From afar, it sounds like a fairly silly idea: Why would anyone want to see photos of a landmark taken by strangers, especially when they’re already standing within viewing distance of said landmark?

Despite tremendous investment and hype, Color closed its doors in 2012, without so much as a single success story after launch. The company’s failure was a huge black mark for Sequoia Capital, the famous firm behind eHarmony, Google, LinkedIn and Yahoo. Earlier this year, Color sold off its engineering department to Apple for $2 million.

Compare these failed IPOs and crumbled consumer startups with the enterprise-focused data indexer Splunk. While Splunk’s actual financials aren’t terribly different than Zynga’s (both companies have a negative earnings-per-share ratio at the moment), Splunk remains a popular stock on Wall Street while Zynga continues to plummet toward crisis. And while Splunk continues to hire and expand operations, Zynga is laying off workers.

Rydbeck believed this is a result of the realization in the investment community that open-source business software and the solutions that come out of Facebook and Google can be turned into lucrative businesses.

“I’m nowhere near the first to make this observation,” he said, “but there’s a pattern of the giant Web companies like Google, Amazon, Facebook and Twitter encountering data and computing problems before the rest of the world and solving them internally. And once there’s a solution, it often becomes open-sourced, and then people realize the technology can have applicability to broader use cases within business. That’s becoming widely recognized.”