Operator clouds: it's all about the base

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.

Operator clouds: it's all about the base

It should barely be a surprise that many consumers expect personal clouds to be free. They can often get enough free storage and there is little reason to upgrade simply for more. Many consumers view personal clouds like a free usb drive in the sky, it’s there when they need to store or get a file. If they run out of space, they can delete something in their sky drive or switch to another service.

Despite their lack of revenue generation, why do so many companies offer personal clouds? They believe that people who use their clouds become captive to their ecosystem and are less likely to churn. Financial models based on conservative assumptions show that even if personal clouds decrease churn by a fraction of a percent, this translates into huge amounts of indirect revenue for providers.

The $bazillion question is if personal clouds really do reduce churn and by how much. If they do it significantly, they are quite lucrative and providers should invest heavily to ensure their success.

The challenge is that it is nearly impossible to accurately measure the impact of an operator personal cloud on churn. It is one thing to track the churn of a standalone service, by comparing user drop-off between periods. It is quite another to isolate the effect that mobile subscriber use of a personal cloud has on their decision to stay with an operator as many things affect this. Complicating this is that it often takes time for users to build affinity for a personal cloud. These services are less ‘instant gratification-like’ social networks and more similar to user content-based systems whose value grows over time.

Consider the stickiness of iTunes, whose importance has waned due to streaming. Many millions of people invested significantly in iTunes paid content, music and videos. Are these people more likely to buy additional Apple products? Yes. While some people might complain about Apple lock-in in the form of higher costs and inflexibility, many people swear by the Apple experience. Lock-in can have privileges. The moral is that if consumers believe there is enough reward in being locked-in, they tolerate it. Examples of similar consumer services include frequent flyer programs and online banking. These yield major value for providers even if they generate little direct revenue from consumer use.

This begs the question: do consumers view personal clouds more like iTunes or a free usb sky drive? Consider another operator service: voicemail. How many consumers pay for it? Few. How many people expect it from an operator? Many. How many people would not switch operators due to their voicemail service? Few, because it is a commodity. A switching cost only occurs for commodity services if the user has invested significantly in them. Consider webmail offered by some mobile operators, these tend to be highly sticky, due to its learning curve, stored email addresses and other user content. The more a person engages with the service and makes it a key part of their life, the higher its churn buster potential.

Where do personal clouds rank on this spectrum of customer loyalty? Many personal cloud services lack the long-term value of iTunes as users have not invested in them. If someone casually uses a personal cloud as lightweight backup, the user views it like voicemail that can be easily discarded and has few qualms about switching operators. If someone actively engages with an operator personal cloud by storing a lot of content in it and sharing it with others, the switching cost can be substantial.

What is the upshot for providers? First, they need to provide a service that is much more than garden variety cloud storage. Operators should go-to-market with a service that truly engages users. Some services are fundamentally better at this, in particular, ones that focus on improving people’s digital lives rather than just contacts backup, content transfer or file access. A sub-par user experience has the opposite impact of engagement, rather than keep users around it tarnishes the operator's brand and turns people off.

Secondly, operators need to market their personal cloud services much differently than voicemail. They need to actively promote it as engaging people in ways they care about. This varies significantly around the world, which makes it imperative to tailor the capabilities and marketing of the service to the tastes of their market. A one-size all cloud fits nobody in this age of choice. In comparing personal cloud user take-up at dozens of operator deployments worldwide, this is the key difference between rapid and tepid adoption. Engagement is the key to creating long-term value for both users and providers.