How Long Can Cloud Storage Keep Breaking the Rules of Business?

Any business person will tell you. You can only get away with “free” for so long. Afterwards there are salaries to be paid, bills to be settled and resources to be renewed. So how much longer will online file storage providers continue to give away space for nothing? The trend if anything seems to be accelerating. Free terabytes are now on offer from several operators. But be honest – would you even be able to usefully fill up just one terabyte? The online file storage provider is unlikely to make any money out of you in that case. If so, providing more free space will cost a provider more money and exacerbate a loss-making situation.

Cloud Storage Wars

In other industry sectors, some enterprises deliberately set out to be the low-cost leader. They rely typically on high-volume high-efficiency operations to make overheads a correspondingly smaller fraction of turnover. This allows them to offer products or services at low or even the lowest prices, while making a profit. Note those two vitally important points: low-cost (not zero); and profitably (sustainable). Now look at the cloud storage sector. Free is not low-cost and as such there’s no possibility for profit. Internet business models are not always easy to understand. Some loss-making businesses go on to huge IPO success notwithstanding. But most unprofitable enterprises simply cannot survive.

A Change is Gonna Come

For the reasons above, things can’t stay the way they are. This will doubtless be regretted by many users and also some cloud storage aggregator operations that offer users the possibility to leverage free space from multiple providers. But some of the players are already moving towards other modes of business. They are not forsaking online file storage. Rather, they are using it as a basis for more lucrative business selling other services to their customers. It’s somewhat like the time-honored marketing model of the razor (low profit) and the razor-blades (more profitable and continuing revenue stream).

Where Do We Go From Here?

That depends on the provider and its strategy. Box for instance is moving to target the value-added market. It aims to help developers and organizations with closer integration with other apps and with industry compliance. Dropbox recently acquired email operator Mailbox and currently looks set to continue in competition with the likes of Google. Other providers were already charging for storage, but may also need to introduce added value to avoid being squeezed out of business. Yet others have identified private and hybrid cloud storage as sectors where they can reasonably expect customers to pay for storage services or functionality provided.

Will the Loss-Leader Survive?

If cyberspace was divided by physical, geographical boundaries, online file storage providers would have a tougher time with their loss-leader strategies. Below-cost pricing is banned in certain countries and restricted in others. This includes product and service strategies that are globally designed to be profitable, but that have stand-alone loss-making components. Still, Darwin’s Law applies to all businesses sooner or later, with the survival of the fittest (profitable companies) and extinction of the rest (loss-makers).