AWS Zocalo may signal the death of cloud storage as a market

When Amazon enters any market, its objective is to drive down prices and drive out the competition. That’s what it’s trying to do with Zocalo, its new file-sharing and collaboration solution.

Earlier today, the Seattle, Wash.-based tech giant announced Amazon Zocalo, a document storage and collaboration service for the enterprise. Zocalo enables users to store documents, sync them across devices, follow audit trails, and more. Folks can also offer coworkers feedback on content, affixing comments to specific areas of a shared PDF or webpage, for example. (You can find the full product details here.)

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Amazon’s new service could majorly affect the cloud storage market, which is already on a path to commoditization. Here’s what Amazon’s introduction of Zocalo means for the cloud storage and collaboration industry.

Cloud storage as a market is going to zero

Amazon’s competitive advantage is its ability to offer storage and compute resources cheaper than other cloud vendors. It’s rivaled only by Google in this area. Amazon thrives on entering markets that have demonstrated demand and commoditizing them. Hosting was first, and storage is next.

Zocalo signals the final phase of cloud storage commoditization. Amazon and Google, with its unlimited storage announcement for Drive at Google I/O,  are both driving the price of storage to zero.

So, yes, cloud storage as a market is dying.

New apps will subsume the value of cloud storage

As the willingness to pay for cloud storage evaporates, value will shift up the stack to new apps that solve functional challenges. Think of apps that offer content discovery across multiple storage repositories, content surfacing and policies based on metadata, content discovery and recommendations based on a user’s profile, anomaly detection around content usage, sharing, and permission settings. All the added value from legacy software will be moving to the cloud on top of the storage infrastructure.

Zocalo’s advanced commenting and editing features are perfect examples of vendors moving “up the stack.”  Dropbox’s Carousel, which allows users to collaborate on Office documents, and Box’s advanced metadata are other examples of this trend.

Zocalo will put pressure on Box & Dropbox — but long-term, it poses the biggest threat to Google

Zocalo’s impact on competitors will vary by player and time horizon. In the short term, Zocalo’s clients will be existing AWS clients that have yet to adopt a file-sharing platform. Given Zocalo’s limited feature set, it is unlikely that Box customers will find Zocalo to be a realistic alternative today.

That said, Zocalo’s aggressive price points will put margin pressure on Box as it seeks to grow quickly and gain share.

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Dropbox is in the same category. Though it would be unexpected to see a massive defection of existing Dropbox users to Zocalo, Dropbox’s price premium will not be sustainable as it seeks to maintain its growth. For mainstream adopters of cloud file-sharing solutions, price will become a much more important factor and Dropbox will have to adapt to market realities.

Long-term, Amazon has its sights set Google. Of all the players in the space, AWS is the only service with the resources to compete with Google on cloud compute and storage prices. Expect the competition to intensify and a wave of mergers and acquisitions as vendors seek to move up the value chain.

The real winners from these dynamics are chief information officers. With many viable alternative solutions and increasingly attractive economics, there has never been a better time to be a buyer of file-sharing and collaboration tools.

Alex Gorbansky is the CEO and founder of Docurated, a provider of sales and marketing productivity software to leading organizations like Weather Channel, DelMonte, Netflix, Havas, Digitas, and many others. Prior to Docurated, Alex co-founded Frontier Strategy Group, a leading emerging markets research and data business. Earlier in his career, Alex was a storage industry analyst at Taneja Group and held product management roles at EMC and Loudcloud. Follow Alex on Twitter @docurated.

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