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The current cloud storage market explained

Back in 2013, Storage Decisions speaker Jon Toigo predicted the cloud storage market would become a vicious battleground. Cloud vendors would be "armed to the teeth," fighting to provide the superior cloud option.

While the cloud storage market today is certainly competitive, Toigo, the CEO and managing principal of Toigo Partners International, recently acknowledged in his 2014 Storage Decisions conference keynote that it didn't turn out quite like he had envisioned. "It's a race to the bottom; all the vendors are trying to be the low cost leader," he said.

In his presentation, Toigo compared the cloud storage market to the gasoline price wars of the past. "Everybody is gouging their price to get a little more market share," he explained. One major problem with this model is that as prices go down, so does quality of service. On top of that, Toigo deemed the current cloud storage pricing model unsustainable. "They're capitalizing on the low costs, so they can charge you a little bit less," Toigo said. "But those low costs aren't going to live forever."

We're putting our data in harm's way, and we're not paying a lot of attention to it, we won't until some major disaster occurs.
Jon ToigoCEO and managing principal, Toigo Partners International

The security of cloud storage also remains a concern. According to a 2014 British Telecom study, trust in the cloud is at an all-time low. Despite this mistrust, low prices in the cloud storage market keep drawing people in.

"Seventy-nine percent [of survey participants] report that they are adding consumer cloud-based services and apps to their business, mainly as a cost savings measure. We're putting our data in harm's way, and we're not paying a lot of attention to it. We won't until some major disaster occurs," Toigo explained. "Except that last year I thought that major disaster had occurred," he said, referring to the 2013 collapse of cloud vendor Nirvanix.

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Transcript - The current cloud storage market explained

Editor's note: The following transcript has been edited for clarity and length.

Amazon, Google and Microsoft have become the industrial farmers. All of the other specialty providers are buying their services from Amazon, Google and Azure. And when you think about that for a second you say, "OK. Well, that means that the little service providers are buying. Are the enterprises buying from them?" There's no evidence that enterprise-class customers are buying their storage services from public clouds. They simply aren't doing it, according to the reports that are here. In fact, it's a two-edged sword for these service providers.

The quality of service suffers when they keep dropping their price. Because right now the low price per gigabyte on the storage encourages Netflix and all these other guys to start their services up nested under one of these major cloud storage providers. And they're capitalizing on the low cost, so they can charge you a little bit less, and they can fight each other for services. But those low costs aren't going to live forever. And soon as they're rightsized and then brought back up to normal plane we're in a big shake out in this industry of vendors. You will not be able to afford their services. That's one of the reasons why venture capital money has dried up for cloud storage service providers this year. It's at the lowest that it's ever been.

I'm having a really hard time believing that these guys are going to be able to control this model. I don't believe that's sustainable. I said last year that with the advent of very high-capacity drives on the market where a cost per gigabyte is going to be .00000001%. That somebody selling disk capacity in a cloud at 15 cents a gig isn't going to be able to compete. That's my big concern here.

IDC says, "The file sync and share is coming to the rescue." That's the big growth segment in this market. Actually our file sync and share guys are simply buying storage from low cost Google, Amazon and Microsoft and they're offering it as a wallet that holds your files so you can access them anywhere in the world through the Internet. Isn't that the general idea of file sync and share? And you think, "Well, that all sounds pretty good."

Of course there's no dominant vendor right now. And what's really interesting is that large-scale enterprises are not doing file sync and share. Their employees are using insecure free public file sync and share services. Dropbox lets me have a terabyte of free space for file sync and share. I don't have to pay for it, I'll just put it on my laptop. I'll put my corporate files on there and when I travel somewhere I'll be able to access them when I'm in the Hotel Roma in Lisbon, enjoying my little coffee. Well, I've got news for you. It's like uploading them all to the NSA.

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What do you think of current state of the cloud storage market?
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- Prices continue to fall, although price-cuts have been slowing lately.
- Probably a $1B+ storage market for AWS, which nobody is talking about (mostly just the all-SSD startups)
- Still difficult to move large amounts of data to the cloud (or back). AWS Snowball will be interesting to watch - expect large interest and usage.
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Also, Oracle starting to come out with more services at very competitive pricing. Will be interesting to watch the Enterprise uptake from Oracle Apps/DB customers. 
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Well, several consumer grade storage services have been shuttered, but Nirvanix was a business grade storage service with over 1000 customers, some of whom were at PB scale. Exactly why Nirvanix shuttered their storage service remains something of a mystery. The company had received $70M in funding, but the last six months of operations will likely tell the tale if it is told. There was executive churn at the CEO position, a website that went unattended for months, rumors that there were problems with their storage architecture, an inability to either sell the company or raise additional funding in the final months failed. Nirvanix had a deal with IBM and was trying to run with the big dogs in storage. Perhaps Mr.Toigo is right, that the race to bottom in cloud storage broke the Nirvanix business model so badly that the company could not survive. Damage was clearly done if customers could not extract their data assets from Nirvanix before the deadline. The collapse of Nirvanix remains a cautionary tale, but there were warning signs.
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Nirvanix is now owned by Oracle and their technology is the core of the Oracle Storage Cloud services. 

It's all about scale and efficiency in Cloud storage. While some can get very efficient at operations, can they push enough capital into the business to get it to the scale needed to drive down costs at reasonable margins. 

Cloud storage is a tough game by itself. It's really more about getting the data closer to compute services (or database services, or AI/ML services) which can be better monetized.
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@Brian, typical of Oracle to wait for a "going out of business sale" to acquire the IP or assets of Nirvanix. Oracle hired 40 engineers from Chris Kemp's OpenStack startup Nebula after it burned through almost $40M in funding and closed its doors in 2015. Back in 2013 Oracle acquired the EC2 private cloud startup Nimbula, which had received $20M in funding before times got tough.
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