Word clouds created a bit of buzz when they first became popular a couple of years ago (or at least that's when I encountered them for the first time). Like the infographic, they have a bit of sex appeal that draws you in. As in the case of infographics, however, I often find that upon further evaluation they tend to be a letdown - full of fluff without so much informative value.
While facilitating a workshop recently, I heard a horror story about someone who had tried to create a word cloud by hand (perhaps the scariest part of the story involved scaling text boxes one at a time). Lesson: in data viz (and in life), if you find yourself doing something tedious and repetitive like that, stop to reevaluate. At minimum, do a Google search. Even better if you can find a blog post or related article on the topic from someone who has encountered the same challenge before and identified an eloquent solution.
In the case of word clouds, there are a number of applications you can use to generate them. Wordle is a popular free product (created by Jonathan Feinberg of IBM, note that if you upload your Wordle to the gallery, the data goes with it, though you can also opt for local-only word cloud generation) that allows for quite a bit of customization of color, size, font, etc. Google docs has a word cloud gadget within spreadsheets. There are a number of others, easily located via a Google search.
But before you start thinking about generating word clouds, let's continue our discussion on their efficacy. Their sexiness can draw you in. But is there value beyond that? I think it comes down to the use case. I've got one example for the negative and one for the affirmative.
Poor use of word clouds
First, let's take a look at an example from a Community Health Center. My understanding is that they employed a consultant to analyze some survey data from their clients. The consultant put together a report filled with pretty word clouds like this one:
Good service is... minutes? Part of the challenge in this case is that the connotation has been completely stripped away from the nouns, removing the sentiment behind the comments. Which is kind of the important part of the comments, in my opinion. But in reading the report, buried near the end of it, I found the following:
The consultants took the time to content-code the comments. These categories and their descriptions are much more useful for understanding what people value than the word cloud. With this info, we can direct action: we get an understanding of what's going well that we want to maintain, as well as potential areas for improvement. We could take this a step further of making the data visual like this:
In this case, I think the simple bar chart is much more useful (in terms of both understanding the information and determining how to act on it) than the word cloud. Now let's look at a better use of word clouds.
Thoughtful use of word clouds
Caveat: this example came to me by way of the telephone game (I heard it from someone who heard it from someone), which means it's guaranteed that I don't have the details totally right. But I think this still serves well as an example of a good use of word clouds. The story goes: Apple stores obviously really value customer service. They use surveys to collect info about each store. Each day, they create a word cloud for each store based on customer comments. What they are looking for are 5 (I'm making that number up, I don't know what the real number is) specific words - things that are considered must-haves when it comes to customer service in their stores. It's when these  words don't show up prominently on the word cloud for a given store that a red flag is raised and some sort of action is taken.
This is what I would consider a thoughtful and actionable use of word clouds. If the required word doesn't appear, some sort of intervention happens.
We can generalize this to the following: when you're considering using a word cloud, think about what you want your audience to know and what you want your audience to do. Then ask yourself if a word cloud will enable them to know and do those things. And for goodness sake, if you do use a word cloud - leverage some of the tools that exist - don't try to create it by hand!