Cloud storage has become increasingly popular with both consumers and enterprise. Amazon.com, Inc. (NASDAQ:AMZN) has been a pioneer in the cloud computing industry, thanks to ongoing investment in its Amazon Web Services, or AWS. The company launched Amazon Cloud Storage in 2011, signalling its interest in going head-to-head against services such as Dropbox that were popular with consumers. The market for cloud storage has grown increasingly crowded, and a clear divide has developed between options for average consumers, power users and enterprise.
Amazon blew that model to pieces when it announced Amazon Cloud Drive would be available with unlimited storage — for anyone — at just $59.99 per year.
This is an aggressive move that has serious implications for virtually every company in the cloud storage space.
Disrupting the Cloud Storage Competition
Amazon Cloud Drive competes against cloud storage systems like Box (NYSE:BOX), Drive from Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL), OneDrive from Microsoft Corporation (NASDAQ:MSFT), iCloud from Apple Inc. (NASDAQ:AAPL) and, of course, Dropbox.
Apple is unique in that it’s iCloud service is geared toward consumers, but the other major cloud storage providers offer plans targeting two distinct markets: consumer and enterprise.
Enterprise and business offerings tend to include unlimited storage, large individual files sizes and a premium price.
For example, business cloud storage options at Box start at $17/month per user, with a minimum of three users. So, that’s $51 per month, or $612 per year, for unlimited cloud storage with maximum individual file sizes capped at 5GB.
All services offer free basic cloud storage for consumers (15GB on Google Drive and OneDrive, 5GB on iCloud and 2GB on Dropbox). Amazon Prime members received unlimited online photo storage plus 5GB of free storage space as part of their membership.
Power users — those who rely on cloud storage for everything from digital photos to online PC backups — are offered the option of paying for additional storage space. For example, on iCloud, 1TB of storage goes for $20/month, Google Drive offers 1TB for $9.99/month and Dropbox charges $100/year for 1TB of data.
Amazon Cloud Drive’s new pricing completely disrupts both the consumer and enterprise cloud storage pricing tiers adopted by the competition.
The free storage plan for Amazon Prime members remains. However, Amazon is now offering it to anyone for $11.99/year. That plan may have limited appeal (unless you upload a lot of digital photos) with some competitors offering equivalent or more storage for free.
The real killer is the $59.99 Unlimited Everything Plan.
Anyone — consumer, small business or enterprise — can get unlimited cloud storage on Amazon Cloud Drive. There are no per-user costs, no caps on maximum individual file size. For enterprise users, the $612/year Box plan that covers only three users and prohibits uploading files greater than 5GB is now going up against Amazon Cloud Drive that offers the same unlimited storage with no file size restrictions at less than a tenth of the price.
Amazon Cloud Drive works with Macs, Windows PCs and mobile devices, so compatibility isn’t an issue.
As if that’s not bad enough, Amazon offers both plans with a free 3-month trial.
The Likely Effect on Cloud Storage
Amazon’s big move is unlikely to generate much in the way of profit for the company. As Business Insider points out, AWS — the Amazon cloud computing business — operates on thin margins. While the revenue it produces for AMZN is impressive, it lost money last year and is expected to be only marginally profitable by 2016.
However, it is likely to increase Amazon’s lead in the cloud computing and cloud storage space.
Competitors will be under pressure to reduce their rates for consumers. Not a biggie for Apple, Google and Microsoft, but it will hurt companies like Box that are built entirely around online file storage. There will also be considerable pressure to cut corporate rates, which means cloud storage services like OneDrive will be scrambling to emphasize the advantages they offer over Amazon Cloud Drive — integration with Windows software, easier sharing of files, or superior customer service.
Meanwhile, investors who jumped on the recent Box IPO will be waiting for the fallout. The most nervous of all should be Dropbox executives, who will be gauging reaction to the Amazon Cloud Drive announcement and how that affects their potential for an IPO.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.