Revisiting the Business Case for a White-label Personal Cloud Solution: mid-2015 edition

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.

Revisiting the Business Case for a White-label Personal Cloud Solution: mid-2015 edition

“The more things change, the more they stay the same.” (from a French proverb)

As personal cloud services evolve, it is worthwhile to periodically look at the financial model behind self-branded (white-label) solutions.

This is relevant as personal cloud services offer more free storage as well as more storage for paying users. This makes it a better value for users, while raising questions about how providers make money.

There is no indication that large over-the-top (OTT) providers are slowing down with their personal cloud services, if anything, they are getting more competitive. Consider the recent Google Photos debut that allows unlimited photos and videos (albeit with reduced resolution but still, it is novel) – how do providers compete with ‘free’?

Another example of this market competitiveness comes from Dropbox. Although the company has not said anything officially about this, the rumblings are that Dropbox is going to focus more on businesses as there is a growing belief that it is hard to compete against Google Drive and MS OneDrive. Dropbox has 300M users, however, the super majority are likely using the free version, and Dropbox is finding it difficult to monetize them. One rumor is Dropbox is going to inject ads into their free service, to make money like Google. But the big question remains, if a provider with that many users has difficulty justifying their service financially, how can others?

The brief answer: the more things change, the more they stay the same. The same reasons exist as to why providers need to offer a personal cloud service. It has become a foundation for products and services related to their ecosystem. If your organization doesn’t offer it, it’s that much easier for customers to leave. This is especially true for mobile operators, where reducing churn remains top priority. This is why Apple, Google, Microsoft, tier-1 operators and others continue to invest in personal cloud services, it is highly strategic.

To review the business case, it boils down to two types of revenue: direct and indirect. Direct is from users upgrading to premium versions; indirect is other sources.

In our customer base, there are multiple examples of deployments that generate significant direct revenue from their consumer cloud service. However, this market is not a case of one size fits all, every operator has unique opportunities, and it is essential to have vast flexibility in how they go to market. Direct revenue is one path pursued and it is highly lucrative in some cases.

Beyond this, the Holy Grail is using personal cloud services to retain customers. This is indirect revenue, and In terms of potential, it dwarfs direct revenue. This is why large providers are getting more aggressive and why Dropbox is shifting from consumers to businesses (because businesses are more likely to pay and unlike other OTTs players and operators, Dropbox has no other ecosystem). For companies with an ecosystem, it is a no-brainer to offer a self-branded personal cloud service.

But here’s the kicker – not all personal cloud services are created equal. The cloud drives, like Dropbox and Google Drive, are prone to being used for free. How hard is it to move files from one cloud drive to another, or to sign up for another free account? It takes moments.

In contrast, personal clouds that are more than cloud drives are much harder to abandon. This is because they store structured data such as contacts, calendars, photo captions (metadata) and more. People could move files to another service but they would leave a big part of their digital life behind.

It’s the same reason that once people get hooked on online services like music streaming (playlists) or social networks (friends and privacy settings), they are loathe to leave without serious consideration. It’s one thing if a user views a cloud service as backup or something they use once in a blue moon to transfer content, or that is invisible that runs in the background and for which they have little connection (emotional or professional). It is entirely different for a service that adds major value to people’s lives and work.

This is the why the business case underlying white-label personal cloud services makes sense (and cents), even when competing against ‘free’. The more things change, the more they stay the same. The imperative for a self-branded personal cloud service remains highly strategic and important.