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."
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.
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.