Game Over? Game On In the Personal Cloud Market

Hal Steger : Thinking Out Cloud
Hal Steger
Vice President of Worldwide Marketing at Funambol. 20+ years of marketing & product management experience at high-growth, innovative global software companies.
| This blog is about personal cloud solutions, technology, trends and market developments. Its scope is to comment on and discuss several aspects of personal clouds.

Game Over? Game On In the Personal Cloud Market

Google recently announced that its new Photos service provides unlimited* cloud storage. The asterisk? Google Photos provides ‘good enough’ quality; high-res pictures and videos might see a drop in quality. For users concerned about quality, they can pay to retain the original resolution. This might be attractive to some people such as professional or hobbyist photographers or other videophiles.

What is the big picture (pun intended) meaning of unlimited cloud storage for consumers and providers? Some people are calling this ‘Gmail for photos’, implying it is like Gmail’s disruption with a new approach and limitless capacity. Will it be as disruptive, and if you provide personal clouds, what is your response?

The trend is clear, Google has upped the ante in the cloud storage war. Market observers have expected that a major player would offer free unlimited storage in a ‘race to the bottom’, it was just a matter of time. It comes as little surprise that Google, with its deep investment in cloud computing and pockets, did it. It should not surprise if others follow suit, such as Microsoft. Amazon already offers it. These companies all use their personal clouds as a tool to attract and retain users to their ecosystem.

What is the implication for consumers? Economics shows that when the price drops, demand often rises. As the cost of cloud storage falls, more people are likely to use it. But Economics also says something else relevant, ‘there is no such thing as a free lunch’ - what are the gotchas?

Although users do not pay for the service, there are real costs. Google is offering free unlimited storage because they will monetize user content via ads. The main cost is ceding privacy to a company so it can make more money off you. Although Google has new controls to protect user privacy, make no mistake, the main way Google makes money is ads, and pictures and videos will be mined. If everyone set their controls to max privacy, how long could Google provide this as a free service?

Another cost is getting locked into Google, making it difficult to use other products. Though this may seem trivial, consumers have long voted with their wallets to ditch ‘lock-in’ services. iTunes is a recent casualty as consumers have switched en masse due its artificial restrictions.

What are the conclusions? Consider using a cloud photo service that does not lock you in and is not from a company that makes money from advertising. As common sense says, ‘you get what you pay for’.

What is the impact of unlimited cloud storage on providers? Google is ratcheting up pressure to be the steward of consumer mobile data. Though Google Photos is for pictures and videos, it is likely just time until this extends to other data such as files. While it will take time for people to adjust to free unlimited storage, a natural extension is the gradual demise of the freemium model. Does the lack of revenue from cloud storage mean ‘game over’ in this market? Au contraire, for mobile providers, the real message is ‘game on’.

Mobile providers need to follow the strategy of Google and over-the-top (OTT) cloud storage companies. They should understand that the real value of personal clouds to providers is not immediate revenue but as an acquisition and retention tool. There is ample evidence that supports this, which is why OTTs are investing heavily to make cloud storage the centerpiece of their strategy.

Providers now have a major opportunity to harness lower costs. The monthly price of a gigabyte of storage has fallen from 10 cents to less than 3 cents. Some providers are paying exorbitantly, 10-20x this, severely hampering their ability to compete. Providers should immediately review their costs to ensure that their cloud storage costs are market-priced so they can effectively compete. Simply put, any provider paying more than this is getting ripped off.

Another key is to understand that personal clouds have become a required enabler of mobile services. The advice is to bundle personal cloud storage with related services, such as mobile security, insurance and tracking that offer significant value. Bundling is seeing rapid adoption in several areas of the world and is vital to competing against OTT cloud services.

Back to Gmail for Photos, Gmail had a big impact. But most people do not use it. There are several reasons, including people being creatures of habit, not wanting to migrate their mail, not trusting Google, or Gmail being unavailable. Though Google Photos has potential, its impact remains to be seen, especially as the cloud storage market has different dynamics and constituents.

Google Photos is an important new service. But to counter the impression that it is game over in cloud storage, it actually raises cloud storage to a new level. Lower pricing increases demand to make cloud storage more important as an enabler of innovative mobile services. Mary Meeker recently wrote in her 2015 annual report on Internet Trends that long term winners are platforms that take 10 years but that might not be amenable to short-term monetization. Personal cloud services are the poster child of this - mobile providers who understand this can compete against OTT services and be the long term winner.