The Game of Clouds

Thanks for subscribing!

A few weeks ago, Amazon announced that it will offer consumers an unlimited cloud storage plan for less than $60 per year.

This price reduction wasn’t a huge surprise, as the average price of Amazon’s Cloud Drive was already higher than most of its key competitors. But what’s more interesting is how Amazon’s competitors will react. We can expect that the other large players, like Google, Microsoft, Dropbox and Apple (to a certain extent), will follow Amazon and re-organize their cloud storage plans in the near future.

 

 

Cloud storage prices have plummeted over the last couple of years. Further price reductions will have significant implications for the numerous start-ups and large solution providers playing in the crowded consumer cloud storage market.

Why are these companies racing to reduce prices? There are two key reasons.

First, consumers have yet to fully embrace cloud storage solutions. According to ABI Research, there are currently over 1.5 billion cloud storage user accounts and ABI expects this to triple by 2018 with the increasing proliferation of connected devices. Despite the large number of accounts, current usage levels remain low – an average consumer uses less than 1GB of cloud storage. Moreover, according to a Nielsen study, most consumers expect free storage. Lowering prices will further reduce adoption barriers and larger (or unlimited) storage space will encourage consumers to upload and organize their content across devices (and not just smartphones), creating a lock-in effect for the storage providers.

Second, the cloud storage solutions have high strategic value for the key players, and they are therefore willing to forgo profitability. Here is why:

  • Amazon is utilizing Cloud Drive to attract news users, and hopes that they will spend their money on its eCommerce and Amazon Prime related services instead. The Cloud Drive is leveraging Amazon Web Services (AWS) infrastructure to disrupt the competition with extremely low prices.
  • Google Drive is the backbone connecting Google’s consumer internet and Android services. Drive contributes less than 0.1% of Google’s overall revenue, however, its value lies in enhancing user experience which will drive traffic and ad revenues.
  • Microsoft is betting on making money with Office 365, which is integrated with OneDrive. It will happily give away free storage if that will get more people to use Office 365. In fact, if you pay for Office 365, you get unlimited storage for free. And if you pay for the unlimited OneDrive plan, you get Office 365 for free. Also, Microsoft is leveraging its enterprise Azure cloud infrastructure, which is a key priority for the company’s CEO Satya Nadella.
  • Apple views iCloud Drive as the invisible glue that enables a seamless experience across Apple devices and iTunes. iCloud Drive will also keep users locked in the Apple ecosystem, and perhaps maybe even influence their device repurchase decisions. Interestingly, Apple uses AWS and Azure, in addition to its own servers, to provide iCloud services to the Apple customers.
  • Dropbox, the company that jump started this market, arguably has the most at stake. It has a large user base, and experts estimate that less than 5-7% of its consumers (non-enterprise users) pay for additional storage. Dropbox will likely keep these paying power users, but it will need to fight to keep its other customers.  

So, where do we go from here? The competition is only going to get more intense. I expect that cloud storage will be practically free for consumers within the next couple of years, if not sooner. (Look at China as an example, where Tencent already offers 10 terabytes to its new customers for free).

There will be some level of consolidation within the marketplace, and most pure play storage solutions will find it difficult to survive. But I also believe that there are opportunities to innovate. The current user experience of storage solutions could be improved, and I expect that the cloud storage solutions will advance beyond storage to deliver value-added services.

Here are a few ideas for the not-so-distant future:

  • Storage solutions will evolve to include value added contextual and personalization features. For example, your photos would be automatically organized for you based on your location or preferences. Moreover, layering of search and visualization can help users find and organize their data easily. As users upload large amounts of information on their personal clouds, they will expect those solutions to adapt to their context and device usage behavior.
  • Cloud storage solutions will further enable an integrated experience across connected devices. For example, a photo taken on your smartphone will be pushed from your cloud drive to your digital appliance. Or perhaps family plans will emerge, where the cloud will become the default location for the connected home. There will also be integration with digital services like health. For example, Apple may connect iCloud with HealthKit, giving users more control over their health data and centralizing their health information in one location.
  • Information security will be important to build and sustain consumer trust. Security is a frequently discussed topic and according to a Nielsen study more than 30% of cloud storage users are concerned about information security. There have been several security breaches over the last year, and security will be critical with the growing usage of cloud storage and increasing sophistication of attacks. I have no doubt that the consumers will opt for solutions that continuously enhance information security, and give them the peace of mind they seek.

 As consumers get more comfortable with using cloud storage, they will expect these solutions to evolve, and to help make their lives easier. While the cloud storage providers are today competing on price and the storage space offered, their future will increasingly depend on their ability to offer an experience that is value-added, integrated and secure.

Thanks for subscribing!

Thanks for subscribing!