Storage Wars: Microsoft Strikes Back

For those of us who are following the on-going price war in the cloud storage market with interest, it is abundantly clear that it has become a classic...

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For those of us who are following the on-going price war in the cloud storage market with interest, it is abundantly clear that it has become a classic race to the bottom with Dropbox, Google, Box, and Microsoft apparently in free fall towards unlimited storage at a nominal monthly cost. So is this a zero-sum game or does somebody stand to win?

Imagining for a minute that I’m a business IT Manager and I recognise that my “prosumer” users are using a wide array of personal storage solutions for their confidential, business-related information, and hoping to put some manners on these users and their data to appease my CEO who is freaking out about the potential PR disaster that awaits him if some of our customers’ data were to be leaked, I decide to take a look at my options:

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The first thing to note here is capacity at either 1TB or unlimited from all the major providers – do my users even need that much space? My experience tell me not so straight away the differentiation between 1TB and limited loses its impact, particularly given the price difference.

Next up is usability, ease of migration, and generally how happy will my users be to start using this solution? Well, a lot of them are using Dropbox and Google’s consumer solutions already so those should be a pretty easy switchovers, but then I’m sure they’re all pretty intuitive and, again, my CEO is going to be more worried about price.

So that leaves us with price, and it looks as though Microsoft’s OneDrive for Business is best value for money – €3.80 for 1TB of storage (and didn’t I read that it was increasing to unlimited later this year?) with Office Online, a 50GB Exchange Online Mailbox, Lync, SharePoint, and all those other Microsoft products? How do they do it?

Good question, friendly IT Manager – how do they do it? Well, for established software giants like Microsoft and Google, it’s really a just a matter of cross-subsidising revenue streams and offering super low cost storage to get users on to their platform. Storage is a Trojan Horse – it’s like supermarkets selling milk and bread below cost to get customers in the door in the hope that will buy some steak and wine while they’re here and enjoying the experience. If we can extend the clumsy analogy a little further, the steak and wine for Microsoft and Google is their cloud productivity platforms, Office 365 and Google Apps respectively, which both will aim to upsell their storage customers to as soon as they have them on board.

There are a couple of gambles taking place in this high stake game of storage poker. The first is the relatively low-risk assumption that the majority of customers won’t get anywhere close to using 1TB of storage so this is really just an above-the-line proposition to entice the customer on board. The second is the more risky assumption that one’s storage platform is such a fantastically sticky product that it makes the productivity platform with which integrates an obvious choice for the user. The fact that Microsoft have recently integrated their Office 365 platform with Dropbox for Business highlights this fact even more – storage has become commoditised and productivity is where the real value is perceived to lie.

The cross-subsidising of storage is all well and good for Microsoft with their legacy software revenue and Google with their advertising revenue, but what about the like of Dropbox and Box for whom storage is their number one product? Will their slick user experience and established share of the consumer storage market be enough to keep them afloat against the big boys who seem determined to price them out of the market? It is unlikely that Dropbox or Box could develop a productivity platform to rival Office 365 in any meaningful way – even Google has struggled to do so, which may explain their reluctance to reduce their storage pricing to quite the extent Microsoft has – so is it a smart move by Dropbox to hitch its wagon to the rising star of Office 365? Or is this the first sign of a potential acquisition that would see Dropbox’s 300 million users and, in my humble opinion, superior storage solution being subsumed into Microsoft’s portfolio? One thing is for certain – this particular war will not be without casualty.

by Michael Cullen @michaelcullen87

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