Personal cloud services that primarily offer storage are quickly becoming a dime a dozen. Further, as the cost of storage continues to drop, providers are giving away more free storage. While a typical amount of free storage is now 5G, in a few rare cases, companies offer 50G. It would not be surprising if the typical amount of free storage significantly increases soon as the battle for users intensifies.
This has the effect of providing many consumers with enough free storage for their needs. While a boon for users, it may prevent many people from upgrading for more storage, negating a source of revenue.
Taken to its logical extreme, this suggests an inevitable march towards service consolidation where only the deepest pocketed and most dedicated remain. There are already some providers who offer unlimited cloud storage for a nominal monthly fee, although in our view, they have hidden gotchas. This does not mean that unlimited services are bad per se but rather, a major question is their long term sustainability. Unlimited storage is not the point of this post, however, and is a topic for another day.
I like to compare personal cloud services to webmail because there are a lot of parallels and lessons to be gleaned. Today's webmail leaders are Gmail, Yahoo! Mail and Microsoft, with others relegated to secondary status or using webmail as a defensive measure to slow user defections.
The business question is whether there are ways to monetize personal cloud services beyond storage. Borrowing from the history of webmail, this much seems clear:
1. The largest of the large i.e. those with true scale, can generate money via advertising. However, whether this actually makes a profit or just subsidizes costs is up for discussion. In the case of personal clouds, the early front runners are Amazon (due to AWS), Google and Facebook, even though Facebook is not a personal cloud per se.
2. Most other providers view their service as a loss leader, to support and enhance other ways to make money. It can be used to sell more hardware, content or services or to reduce user churn. Apple and Amazon (again) are good examples for personal clouds.
3. Another possibility is to differentiate a service by focusing it on markets that ARE willing to pay. Examples include enterprise webmail or secure email for entities that require advanced features. A good example for personal clouds is Evernote that has attracted a significant number of paid users.
What else can be learned by comparing the webmail market to personal clouds? Once a user learns a service, the chances they will stick with it are high, unless there is a compelling reason to switch. What are compelling reasons? With webmail, a good example was Gmail, which offered more storage and different capabilities (e.g. search and tags). There was a buzz about Gmail that made it attractive to technocrati that evolved to mainstream users. This was fed by fatigue with existing webmail such that people were open to a fresh approach. A classic tipping point.
At a certain stage, though, the 'low hanging fruit' ideas for innovation and ease-of-use reach maturation and the services start converging. This leads to a battle for share where services duke it out to attract and retain users. Differences remain but the margins that separated them blur.
When this happens, it becomes nearly impossible for new entrants to make a huge impact. A more likely scenario is for a new category to disrupt a market, like Facebook and social networking did to webmail. Although they are apples and oranges, many people use Facebook to communicate instead of webmail.
What is the moral of this story for monetizing personal clouds? Although these markets are similar in many respects, there are fundamental differences. Webmail is primarily for communication. A secondary use is saving info. Personal clouds are a permanent repository of one's digital life. When it comes to favorite photos, videos, music and more, this should be independent of any company because it should last a life time and span multiple brands of technology.
This raises the very important question of who do you trust to be the steward of your digital memories?
One possibility is yourself. Some people may set up their own personal cloud, if they are technically inclined, but this is a very tiny fraction of the populace. Even if you do, who will maintain it? This is not meant to be a life insurance commercial but there should be an easy way for trusted people to access it.
Given this, are you going to trust Google, Facebook, Apple, Microsoft or Amazon with your digital life?
While these companies are not going away any time soon, the fortunes of tech firms are notoriously fickle. Should people feel comfortable storing their life long memories in the clouds of these companies? While Kodak was not a modern tech company, they were around 131 years and were once a stalwart of the economy. Not long ago, people would have trusted Kodak with their memories. No longer.
I personally would not store my digital life with any of these companies. Why? Because I do not want to be dependent on any one cloud. What if a provider decides to no longer operate a cloud service? While my content would probably not be deleted, it would be a major hassle to switch.
I also have major privacy concerns about storing content in any service that relies on ads, because they have an inherent conflict of interest in mining data. Even though my data is private, it is still creepy knowing an algorithm is going through my personal stuff. My acid test is whether I would keep tax returns in the cloud. Would you store yours in Google or Facebook? Probably not.
I also have concerns about the fragility and temporal nature of some cloud services, especially if they are not intended to be a personal cloud. I have used a leading webmail service for years to save many pictures. When I occasionally go through old pictures, I notice how long it takes for images to appear. I guess this is because the images are on ultra low cost storage as they are rarely accessed. But what happens in another 5 or 10 years, maybe the disk they are on breaks. Companies might cut corners with a free service. The days of disk crashes and people losing info, while rare, still occur.
Which entities deserve to be trusted with your digital life? What about banks, which people trust with their money? Based on the financial crisis, banks have a credibility issue. Further, banks are not known for being leading edge or a natural place to store digital assets. As online banking becomes entrenched, there is more opportunity for them to become a steward for financial-related digital assets. But am I going to store all of my digital assets with Bank of America or Wells Fargo? No.
The economic lessons of webmail and other markets apply to personal cloud services. There will be consolidation and the market will evolve such that there will be a few dominant free services. If this includes Google, Amazon or Facebook, it remains to be seen, as the market is still early and like webmail before Google, there is ample room for innovation, disruption and a tipping point.
At the same time, there will be other providers of free personal cloud services that use them as loss leaders to support other businesses. There will also be several successful differentiated personal cloud services for other markets, beyond Evernote and those going after the enterprise, like Box.
The upshot for providers is that there is still time to play an important role in the personal cloud market, although time is the enemy as it becomes increasingly difficult to attract users.
To monetize users, you must carefully consider your strategy to make sure you follow the right path to reasonable goals. A key is to offer a personal cloud service that does not lock users in, that does not mine data for ads and that is backed by reputable companies so that users trust them to believe they will be around a long time. If someone is using a free personal cloud service, they cannot expect a first-class digital life user experience, performance, support and the latest technology. Users of a paid service, alternatively, can expect this. And that is the key to monetizing personal clouds because as the saying goes, you get what you pay for.
