4 Reasons Cloud Storage is Not a Bubble About to Pop

With the recent S-1 filing by Box for their Initial Public Offering (IPO) the question of a Cloud Storage Bubble is raised once again. But is it really a bubble? And should enterprise customers take note and run for the hills? There is more at stake than what appears on the surface.

Box Files Form S-1 IPO

By Box filing their S-1, their financials are put on display for all to scrutinize. Within those figures, we learn that their 34k+ paying customers contribute $124m in revenue that offsets operational costs to the tune of a $169m loss last fiscal year. Over the past four years of reporting, Box reported an increase in the loss trend. But is this enough to consider impending doom?

Cloud Storage Startup Landscape

In 2013, Nirvanix (another cloud storage startup) closed up shop and sent their customers scrambling. Dropbox is another of the closest competitors to Box and announced their intent to IPO as well. Could Box and Dropbox be following in Nirvanix’ footsteps? Enterprise storage is expensive. Yes, there are economies of scale and tricks you can play to maximize the efficiency, but storage infrastructure is expensive.

So, let’s take a look at some potential hypothesis on what may be occurring:

Hypothesis One: There is a minimum amount of capital required to achieve profitability.

Nirvanix only took on $70m while Box and Dropbox took on $414m and $607m respectively. Consider that enterprises need stability in their cloud storage provider, a substantial number of enterprise features (ie: auth, security) and a solid ecosystem for integration. It is probable that $70m is not enough to reach ‘escape velocity’ in this space. It is possible that $400-600m may not be enough either. It is also likely that scale plays a significant role too. It will be interesting to see Dropbox’ figures when they file their S-1.

Hypothesis Two: The real value for cloud storage is not in unstructured file storage.

Sure, the ability to store, share and collaborate on files online is valuable. However, is there greater value in the meta-data that comes from understanding the behaviors of those files? Plus, similar to the problem email systems and enterprise storage vendors addressed years ago with data de-duplication, there is value to managing files at scale. Not to mention that the meta-data around that data could be repurposed for other functions.

Hypothesis Three: Unstructured file storage is simply a loss leader.

There are many directions a company like Box or Dropbox could take based on their current service offerings. Of course there are many directions this could take, but that is for a future discussion.

Hypothesis Four: The shifting enterprise storage paradigm will not allow cloud storage failure.

It is simple enough to treat all storage the same, but in reality it is not that easy. Traditional methods for storing files on internal storage sub-systems is cumbersome at best when we move into a SMAC (social, mobile, analytics, cloud) based world. Enterprises are already shifting toward cloud-based storage to alleviate the pressure and shift their paradigm. The thought of having to move back to traditional methods would break many apps and services. In the end, enterprises really need to move forward and are not able to go back.

Consider the Options

On the surface, it may appear that Box (and ostensibly Dropbox) may be losing money today, there is much more at stake. Enterprises know they need to make a shift to a SMAC based world too. The cards appear to point favorably in the direction of additional options beyond the currently cloud storage portfolio offering. I would look more toward the future opportunities of the space through one of the four hypotheses and less on the impending implosion.

Tim Crawford is ranked as one of the Top 100 Most Influential Chief Information Technology Officers (#4), Top 100 Most Social CIOs (#7), Top 20 People Most Retweeted by IT Leaders (#5) and Top 100 Cloud Experts and Influencers. Tim is a strategic CIO & advisor that works with large global enterprise organizations across a number of industries including financial services, healthcare, major airlines and high-tech. Tim’s work differentiates and catapults organizations in transformative ways through the use of technology as a strategic lever. Tim takes a provocative, but pragmatic approach to the intersection of business and technology. Tim is an internationally renowned CIO thought leader including Digital Transformation, Cloud Computing, Data Analytics and Internet of Things (IoT). Tim has served as CIO and other senior IT roles with global organizations such as Konica Minolta/ All Covered, Stanford University, Knight-Ridder, Philips Electronics and National Semiconductor. Tim is also the host of the CIO In The Know (CIOitk) podcast. CIOitk is a weekly podcast that interviews CIOs on the top issues facing CIOs today. Tim holds an MBA in International Business with Honors from Golden Gate University Ageno School of Business and a Bachelor of Science degree in Computer Information Systems from Golden Gate University.

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