Although a 'business' case for a 'personal' cloud may seem like an oxymoron, the bigger paradox may actually be how an operator can make money from its personal cloud service.

As an end user, you may not care if your provider makes money, but this does potentially impact you. If your provider cannot make money, it may lose interest in offering a good service. Performance and service levels could suffer. So although users like getting a lot of free cloud storage, at the end of the day, as many people know, "there is no free lunch." So it is important to understand your provider's business model and profit motive.

If you look at popular personal cloud services, the case can be made that they are not yet profitable. iCloud, Dropbox and Google Drive have user bases ranging from 150M+ to 10M. Google Drive is the smallest, given that it was introduced most recently.

In financial projections and analysis conducted by our company , we found that these services are unlikely to have yet to generate positive cash flow from direct revenue. Direct revenue consists of payments from users who upgrade to a paid version of the service. While all of these services allow users to buy more storage, our estimates show that the revenue from upgraders most likely does not yet exceed their costs of the service, especially if development costs are taken into consideration.

The main culprit is the large amount of free storage used to entice people to sign up for the service. Eventually, enough people may upgrade to cover the costs of the service, but our analysis indicates that this may take awhile.

These companies each have different motives for offering a personal cloud service. Apple presumably offers iCloud to add value to and to differentiate its hardware, and to entice users to stay in its ecosystem. By integrating iTunes into iCloud, Apple encourages people to buy music and video from iTunes. In this respect, iCloud may be generating significant indirect revenue, however, its direct revenue is most likely insignificant at this stage, especially for a company the size of Apple.

Google has a slightly different situation. It is most likely offering Google Drive in response to Dropbox, to prevent Dropbox from siphoning a lot of Google users, particularly on mobile, where Google intends to dominate. If you look at what Google charges for additional storage, it is also peanuts compared to their other revenue streams, so again, the bulk of the benefit to them is indirect.

Dropbox is the only 'pure play' provider that must make money directly from upgraders, because it has no other direct revenue generating products or services as it currently stands. Of course, this may change, but for now its business is predicated on making money from premium accounts. The challenge for them is that our financial analysis shows that Dropbox is probably close to breaking even, or possibly losing money, again, due to the large amount of storage given away. As it has a large chest of cash, there is no danger it will go out of business soon. And the fact that it may be losing money is not unusual for a rapidly growing company. But what may be disconcerting is that Dropbox is facing deep pocketed competitors. Not only Apple and Google, but Microsoft and others, that can afford to give tons of storage away for free, such that users will be increasingly unlikely to pay to upgrade just for storage. This is why Dropbox probably needs to find additional ways to generate money beyond those based solely on storage.

This may leave you thinking, ok, personal cloud end users are only safe in the long term using a service from a deep pocketed company. But each of these services has deficiencies, namely, they want to lock you into their ecosystem, which is a topic for another post. So what's the significance of all this?

The logical conclusion is that there is room for other providers. At our company, we are seeing a lot of interest from mobile operators to provide a personal cloud service. They are a naturally great fit to offer a service as they already support diverse brands and ecosystems of mobile devices. They are also deep pocketed, although no company wants to lose money if this can be avoided. So what is their financial incentive?

Our analysis shows that although they can make direct revenue from upgraders like the other services, their chief benefit comes from offering a value added service that keeps their customers from switching. Research shows that subscriber loyalty for operators has never been lower. If carriers provided a personal cloud service with a lot of free storage, that supports all of a user's multiple brands of devices, computers and online services; this could be superior to alternatives. Carriers benefit by retaining customers which could be worth quite a lot.