If you missed it, the Flickr photo sharing service announced this week that it is now giving users one terabyte of free storage. Their website says this is equal to about 500,000 high res photos - wow!
Depending on your perspective, you might view this as a great pr stunt, a bold move to attract or retain users, or a desperate move to carve out a meaningful and permanent niche in a crowded space.
It does raise a strategic question for the personal cloud industry, which is whether the 'great free terabyte giveaway' is just the first of many services to give away all of the storage that users are likely to ever need, or might this be the last?
I don't know what underlying storage solution is used by Flickr but even if it costs as low as a penny per GB per month, giving away a terabyte is akin to costing $10 per user per month. While the super majority of users will not use a full terabyte, the cloud storage architecture used by Flickr probably consists of a hybrid approach of storing some content on more expensive online storage and the rest on lower cost archive storage. Whatever approach is used, it is far from free. If you assume that Flickr has several million users, and that each user costs Yahoo! at least a dollar per month, their annual cost is in the several tens of $millions, if not hundreds of $millions. Why are they doing this?
My guess is that Flickr is being used as a loss leader to ensure Yahoo!'s continued relevancy, and to stem the tide of users defecting to other online photo alternatives, such as Facebook/Instagram/iCloud/etc.
A key question, if you are providing or contemplating offering a personal cloud service, is whether the existence of a service that offers one terabyte for free means that users will become more conditioned to expect free cloud storage, such that they will be unlikely to pay for storage, or in other words, is this the death of the freemium model as we know it?
Readers of this blog know that I like to point out the parallels between personal clouds and webmail. Both have hundreds of millions of users, and the vast majority use these services for free. It doesn't mean that companies cannot make money providing webmail or other email services, however, it means there is scant opportunity to provide generic webmail, because eventually, users discover free alternatives that compel many to switch.
In the case of Flickr, it is useful to understand that Yahoo! is mainly a media company that derives a lot of revenue from online ads. To keep the money flowing, they must continue to provide compelling content and services to attract and retain users. Offering a media service with a terabyte of free storage is a means to an end and is a classic loss leader tactic. Time will tell if it works. If it doesn't, they can always change their terms or sell the service.
As to the broader market significance, the message is that it will become increasingly difficult to charge for simple cloud storage. Providers must focus on good old fashioned competitive differentiation, to ensure their service adds significant value such that users are not tempted to switch to the next best offer that comes along. This is not that difficult, however, it is also not for the faint of heart.
Succeeding in this market over the long term requires dedication and passion about providing the best personal cloud service. There will naturally be some shake-out and consolidation of mediocre or me-too services. Time will tell who the long term winners are. In the short term, it appears as if the freemium model of personal cloud providers will be under pressure, so best to have a 'plan b' for making money.
