Between Amazon & Google, cloud storage will be free by next year

After two decades in Silicon Valley, it takes a lot to shock me.

The idea that abbreviating a four-digit year to two digits became the Y2K crisis, and an industry spent millions to avoid a catastrophe — absurd. A messaging app with no revenue was purchased for $19 billion — wow. My company being in the middle of a market called “cloud computing” that is forecasted to see $174.2 billion in spending this year — out of your mind! Although I never could have imagined these scenarios coming to fruition, I was proven wrong and am now a believer that anything is possible.

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The cloud-storage business has entered an exciting time. This is one of the few segments where consumer interest and trends drove an enterprise market. This blurring between consumer and enterprise creates conflict, confusion, and opportunity, though the dynamics of these segments are different.

There has been a constant slashing of cloud-storage prices — Google being the most recent, dropping prices to $1.99 per month for 100 GB. While some think this is shocking, I don’t. As the industry matures, we’re seeing the companies with scale control pricing. If value is measured in terms of bytes of storage, a race to the bottom is underway. Google is on par with the rest of its competitors, like Amazon and Microsoft, which have made serious plays to cut prices, too.

But storage itself is of little value unless users can consume it through different devices and share and collaborate on top of it. Therefore, cloud storage is tightly coupled today with what’s referred to as the file sync-and-share market.

Going back to the idea that nothing is surprising in the tech industry, we may see the price for cloud storage reach $0 in the next 12-18 months. As companies continue to outprice each other, there is nowhere to go but down, making cloud storage a commodity, dragging down file sync-and-share with it.

Enterprise needs, however, are far more sophisticated, and one size rarely fits all. Success with the consumer does not guarantee success with the enterprise. While the consumer attributes of simplicity and user experience are important, other enterprise needs, such as security, scalability, and performance, need to be addressed.

Enterprises are cost-conscious, but no respectable IT department would be willing to sacrifice security, scalability, or administrative capability just to save a few bucks. This applies across the board, from a 100-person marketing firm in Minnesota to a 10,000 employee tech firm in San Francisco. If the product can win in these areas and create substantial returns, a higher pricing model is justified — which explains why a large number of players are gunning for the enterprise.

The enterprise landscape is further complicated by the existence of storage on premises, where lots of data still resides. Even amid the cloud frenzy, IDC reported that only 13 percent of enterprise data resides in the cloud and 61 percent will never sit in the cloud. So while the allure of free storage seems great, it’s only part of what businesses are seeking. Leveraging existing sunk investments is just as important. While “cloud hype” is at an all-time high now, I believe there will be a healthy mix of both cloud and on-premises storage within the enterprise. This will present opportunities for cloud and legacy on-premises vendors alike.

So as the pricing wars wage on, here’s what I see in my crystal ball:

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• The price-cutting will not end here. We will likely see storage reach $0 over the next 12-18 months. And while storage may become free, the real value and pricing leverage will be in the software layer that makes storage more valuable.
• If you’re a small player — not a Google, Microsoft, or Amazon – and serve just the consumer, your days are numbered.
• There will be winners in the consumer space and the enterprise space, but there will not be one solution that satisfies both markets. And there will be more than one winner in the enterprise market, as it’s too large and diverse to be served by just one provider.

Vineet Jain is chief executive and a co-founder of Egnyte.