The arrival of free consumer storage was predicted a while ago. As more market entrants arrived and as the complexity of delivering online storage declined the value of just storing bits and bytes would naturally go to zero.
The question was what would that mean for the market as whole?
The “race to zero” in cloud storage: “We see ourselves really in a ‘race to the top.’ And what we mean by that is, we are in a race to constantly add more and more value on top of storage, on top of computing, to deliver more capabilities, more kind of industry-unique experiences, greater depth of our platform functionality to the industries that we’re going after….If people confuse us with being in the storage business or whatever, that’s a cost of just the fact that there are just so many companies out there, there’s so much going on on the internet. ”
The recent partnership between DropBox and MSFT is probably an example of how early entrants most current valuable asset is the large number of customers they already have. This “race to zero” is not just a problem for the Storage as a Service vendors, this problem of zero cost storage is a problem more broadly for all Software as a Service vendors. Customers will expect to store arbitrary amounts of data within a SaaS and not pay for the storage. This will include back-ups, archives etc of their data.
The challenge facing everyone in the SaaS market though is that although storage is free to the end-user, there is a non-trivial cost to buying and managing storage and that the cost of the management and support and maintenance of that storage will increase over time as more customers use that storage. And worse, the importance of the storage will increase over time as more customer depend on the data existing and being accessible over time.
The paradox facing SaaS vendors is that storage is free, but data is priceless and to store data you need storage! And so they will have to invest in their storage infrastructure, the question is how.
In the first phase of SaaS, vendors could legitimately build their own storage infrastructures. The ability to monetize the storage as storage made it possible for the SaaS vendors to hire and invest and innovate in storage infrastructure. And innovation was necessary because traditional storage infrastructure simply did not meet the requirements that the new SaaS customers had either in scale or in deployment type or in cost.
What this means is that if you are a SaaS vendor and the current model of building your own is the only model means is that you will have to become over time become an increasingly great storage company to meet your expanding business needs even though that is not where you should be adding value. This will require hiring a slew of technology experts to solve problems that is fundamentally outside of your core business.
And given that there are more SaaS companies than storage experts this will both drive up salaries in storage experts AND … also create a market for storage infrastructure services.
Why will it create a market? Because hiring will be hard, and companies will look for products that meet their needs and the dollars will be big and entrepreneurs will try and satisfy that need.
And what will eventually happen is that SaaS companies will just buy storage infrastructure from infrastructure vendors who will be able to make bigger and deeper investments than any single SaaS player. A single storage vendor can leverage his storage investments across more customers and can make bigger investments than any single SaaS players. And SaaS players will naturally gravitate to those vendors that can provide a high quality storage solutions. My theory is that sooner rather than later SaaS companies will focus on leveraging technology built by storage infrastructure vendors instead of rolling their own.
Why will they buy instead of build?
Storage vendors are better suited to deliver low cost reliable storage because they have deeper understanding of supply chains and a deeper bench of people working on the problem of making storage efficient than any single SaaS provider does. In effect, a small number of storage vendors supplying a large number of SaaS vendors will provide more cost-efficient storage than every SaaS vendor building storage infrastructure on their own.
But it’s all about the people.
Look even if you don’t buy anything else I said, let me leave you with this thought: Hiring a bunch of guys who know storage is hard. Retaining those guys is even harder. It’s much easier to buy a product from someone whose job it is to hire and retain a storage team, especially if the storage is a product you use – not something you directly monetize. A product you buy is a cost that is easier to control – you can spend more faster and cut spending faster with no real impact to the quality of the product over the long term. A product you build is a team you have to hire and layoff when you want to manage costs and that will impact the quality of the product over the long term.
This is huge
The last 7 seven years of my career, I have been rather bearish on the storage infrastructure business. Ironically because storage is not monetizeable but very valuable and doing it cheaply and efficiently and reliably is very important to any SaaS vendor, and because it’s impossible for every SaaS vendor to do it properly, and because the number of SaaS vendors is going to explode, I believe for the first time in ages that Storage sold by infrastructure vendors to SaaS players is going to grow very rapidly …
So I am bullish on storage
And I suppose as someone who once declared that enterprise storage is dead, that is a surprising conclusion.