The Race to Zero

Zero

This is my 500th blog entry, which means I have written several books worth of words. When I started the blog I feared I might run out of ideas in a few months, but our industry has become so dynamic that I am regularly handed more topics than there are days in the week.  

The cloud industry is often characterized by what is being called the race to zero. This is the phenomenon of ever-dropping prices for data storage. The race towards cheaper prices has always been driven by Amazon through repeatedly reducing their cloud storage prices. Every time they reduce the price of their AWS storage services, the other big cloud companies like Microsoft and Google always go along.

There are numerous reasons for the price drops, all having to do with improved computer technology. Memory storage devices have dropped in price regularly, while at the same time a number of new storage technologies are being used. The large cloud companies have moved to more efficient large data centers to gain economy of scale. And lately the large companies are all designing their own servers to be faster and more energy efficient, since energy prices for cooling are one of the largest costs of running a data center.

I remember in the late 90s looking to back up my company LAN offsite for the peace of mind of having a backup of our company records. At that time our data consisted of Word, Excel, PowerPoint, and Outlook files for around twenty people, and I’m sure that wasn’t more than a a dozen gigabytes of total data. I got a quote for $2,000 per month, which consisted of setting up a shadow server that would mimic everything done on my server, backed up once per day. At the time I found that was too expensive, so we stayed with using daily cassette back-up.

Let’s compare that number to today. There are now numerous web services that give away a free terabyte of storage. I can get a free terabyte from Flickr to back up photos. I can get the same thing from Oosah that allows me to store any kind of media and not just pictures. I can get a huge amount of free storage from companies like Dropbox to store and transmit almost anything. And the Chinese company Tencent is offering up to 10 terabytes of storage for free.

It’s hard for somebody who doesn’t work in a data center to understand all of the cost components for storage. I’ve seen estimates on tech sites that say that storage costs for a gigabyte’s worth of data have dropped from $9,000 in 1993 to around 3 cents in 2013. Regardless of how accurate those specific numbers are, they demonstrate the huge decrease in storage cost over the last few decades.

But consumers and businesses don’t necessarily see all of these savings, because the industry has gotten smarter and now mostly charges for value-added services rather than the actual storage. Take the backup service Carbonite as an example. Their service will give you unlimited cloud storage for whatever data you have on your computer. Their software then activates each night and backs up whatever changes you made on your computer during the day. This is all done by software and there are no people involved in the process.

Carbonite charges $59.99 per year to back up any one computer. For $99.99 per year you can add in one external hard drive to any one computer. And for $149.99 per year you can back up videos (not included in the other packages) plus they will courier you a copy of your data if you have a crash.

The value of Carbonite is that their software automatically backs you up once a day (and we all know we forget to do that). But that is not a complicated process and there have been external hard drives available for years with the same feature. But Carbonite is selling the peace-of-mind of not losing your data by putting it in the cloud. It must be a very profitable business since the cost of the actual data storage is incredibly cheap. Consider how much extra profit they make when somebody pays them $40 extra to back up an external hard drive.

In the business world, the fees paid for the cloud are all about software and storage cost isn’t an issue other than for someone who wants to store massive amounts of data. One might think the companies in the cloud business are selling offsite storage, but their real revenue comes from selling value-added software that helps you operate your business and manage your data. The storage costs are almost an afterthought these days.

The race to zero is not even close to over. In one of my blogs last week I talked about how using magnetized graphene might increase the storage capacity of devices by a million-fold. That upgrade is still in the labs, but it demonstrates that progress to ever-cheaper storage is far from done. We’ve come a long way from the 720 kb that I used to squeeze onto a floppy diskl!

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