For the longest time I refrained from making much of a comment about the proposed Dell buyout by Michael Dell and Silverlake. After all, it is a sad story whose final chapter is yet to be written. During a lunch break this afternoon, Carl Icahn in an interview on CNBC once again raised a number of non-trivial questions about the transactions and the go forward outlook for Dell.

Listening to Carl Icahn describe his alternative plan for a what amounts to a leveraged recap of Dell, a few key points have come to mind:

A very modest miss of analyst revenue estimates has cost Rackspace (NYSE:RAX) dearly. The company quarterly results fell short of analyst estimates by $2.54 million, or less than 1% of its quarterly revenue target. The punishment that RAX endured as a result of this miss could only be described as brutal. From its pre-announcement level of around $75 per share Rackspace stock fell in two days of trading to just below $60 - a loss of over $2Billion in market value. For every dollar that Rackspace revenue missed the Street estimate, it has so far lost over $800 in market cap - an 800-to-1 punishment. As a reminder, Rackspace typically trades in a multiple range of 7X to 9X revenue. So what is behind the sell-off, is it an over-reaction and when will it stop?

RAX was clearly priced for perfection, - a momentum story and a trend stock that could only stay at its hefty levels if it not only met but consistently exceeded analyst estimates and raised guidance if available. At around $59 the shares are trading at an intermediate support level. If the shares make a break below $59, - more downside is possible. At the same time, we continue to see the momentum in cloud computing as strong and accelerating. The long term trend remains in place and is broadening outside the base of early adopters. Rackspace continues to be cited by IT buyers and competitors as one of the Top 3 suppliers of cloud computing infrastructure services. Its service levels are praised and pricing levels are often subjected to criticism - a sign that the company is able to maintain its margins against a perception (misguided in our view)  that there seems to be an onslaught of near infinite capacity of cheap computing power. One of the consistent inputs we hear from the field is that many customers use Amazon Web Services for development, but for production often chose Rackspace regardless of price.

Where we do see a challenge for Rackspace and other providers of cloud services, components and tools is that the very broadening of the appeal of cloud computing may actually create a temporary slow down in the sales momentum. The focus of the market is shifting away from early adopters to a much more mainstream set of buyers who take longer to buy, run longer trials and negotiate much harder on price and service levels. This transition is a process, not an event and will create a temporary damping effect in the cloud space. So far, during the recent earnings announcement season, we have seen a number of pure play and component suppliers in the cloud space stumble and see their stocks punished severely. VMware, Riverbed and CenturyLink are all examples of recently disappointing results.

In the near to mid-term Rackspace may see a moderation of its multiple. We do not see the company going the way of Blackberry but investor caution will be more pronounced as the company and some of its key competitors, suppliers and partners wade through this near term period of buyer transition.

Note: The preceding is not an offering or a recommendation to buy or sell securities of any kind. Rackspace, VMware, Riverbed and Centurylink are components of the MGI Cloud30 Index.

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During the holiday season we have been taking a closer look at the Microsoft Surface tablet and assessing interest among consumers, enterprises and app developers.

Our take is that the current version of Surface has some interesting aspects but lacks the critical mass of capabilities and design elements to really "move the needle" for Microsoft in the near future. Our skeptical view is shaped by several factors:

While much of the focus of SaaS is on services that are driven off a browser, there is nothing inherent in the model that prohibits programmatic access to structured web services with a defined business functions. We are begininng to see an evolution of a market for complex business functions offered on a web as a service. One of such services is Monetization, i.e. ability to perform complex calculations over the web for functions such as billing, sales compensation, benefit/pension calculations, complex revenue splits, etc. etc. Examples in the business world abound and range from stock exchange transactions to cell phone billing to sales commissions for complex products.

In the past such processing was largely handled by programs embedded inside monolithic ERP products or custom coded by enterprises. In both cases, the cost for anything robust was prohibitive for most small and medium sized businesses. Now, with a cloud-based offering, many midsize and some small firms will have access to very flexible calculation capabilities.

One of the companies focused in this space is MetraTech. We recently hosted the CEO of MetraTech Scott Swartz for a 20 Questions session during which we discussed the merits of this emerging opportunity.

The announcement of Microsoft long-awaited Surface tablet focused everyone's immediate attention on a few of its hardware features such as the keyboard cover and a USB port. In terms of both opportunity and risk for Microsoft and members of its ecosystem, this announcement represents a seminal event. If Microsoft is successful in gaining market share for Surface and can then extend that initial success to other product initiatives, it can dramatically alter the shape of the PC and mobile computing industry. If it fails, then major changes are likely at Microsoft. Market reaction has been positive as MSFT shares finally moved up today by over 3%.