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How cloud storage providers can survive and thrive

Many cloud storage providers can't beat Amazon on pricing, but other opportunities in the cloud storage market are up for grabs.

Cloud storage providers delivered more than an exabyte of data under contract in 2013, heralding a new era for storage systems and dramatic change in the business model of the traditional storage companies. The cloud storage market has recently seen new providers, new functionality, improved platform maturity, increased enterprise adoption and significant price reductions.

That's the good news.

The bad news is that a single provider -- Amazon Web Services (AWS) -- shipped most of that data. Amazon's Simple Storage Service alone crossed the trillion-object mark this year. While this signals a significant win for Amazon in terms of platform maturity, it spelled bad news for other cloud storage providers that dropped their prices multiple times in an attempt to compete.

This year also saw Nirvanix, one of the early and still privately funded cloud storage providers, implode under the economic pressure from AWS and other giants, such as Microsoft and Rackspace. Every provider should be pausing to figure out the best strategy not only for survival but also for thriving in the cloud storage market.

Anyone can sell cloud storage, but few provide real value

Cloud Provider SpotlightThere's a misconception that it doesn't cost much to become a cloud storage provider -- a couple of servers, some storage and an Internet pipe. But just because you can start with a relatively modest infrastructure investment does not mean that you can thrive or survive at that level. Cloud storage has become all about scale, both technical and financial. The largest cloud storage providers are growing at a faster rate than their competitors and are increasing their economic advantage through greater purchasing power and the ability to use massive, state-of-the-art facilities.

But due to this misconception about the ease of entering the market, the cloud provider landscape has become cluttered with players ranging from Wall Street stalwarts to two guys running Windows File Server in their basement. As a result, "raw" cloud compute and storage services have become low-margin commodities, and the most successful providers in that market have more in common with large component manufacturers than with traditional service providers.

Some of the biggest IT vendors keep trying to replicate Amazon's success in cloud storage, only to find themselves hoping Amazon will go back to selling books.

Consider the production of hard drives and microprocessors: Only a handful of manufacturers own the market. Around these giants thrives an ecosystem of integrators that cater to the needs of all sorts of customers, from high-volume consumer device manufacturers, such as Apple and Sony, to large and expensive enterprise-class systems vendors, such as EMC and IBM.

Similarly, it's best to view AWS as a formidable component manufacturer of raw cloud storage and compute services. And to avoid getting buried alongside Nirvanix and Iron Mountain Digital in the graveyard of cloud storage failures, service providers must focus more on the value-add layer and less on the raw "components." Plenty of private companies and some of the biggest IT vendors in the world keep trying to replicate Amazon's success in the cloud storage market, only to find themselves hoping Amazon will go back to selling books. They don't realize that what Amazon does better than anybody else is to sell lots of stuff at razor-thin margins.

Anyone looking to compete as a cloud storage provider has to consider how to create an ecosystem that will allow it to compete successfully against such a lethal, margin-killing machine. Stop trying to beat Goliath. Instead, ride on his shoulders. Obtain cloud services from the best, lowest-cost provider and focus on delivering to your customers the capabilities they need. Focus on that value-add layer and aim the value straight at what your customers actually want. That way, you will not only survive, but you will also thrive in the brave new world of the cloud.

Microsoft understands this and has deployed its entire software stack on top of its own Infrastructure as a Service with offerings such as Office 365. Microsoft is using its own war chest to give Amazon a run for its money in the cloud. However, you don't have to be as big as Microsoft to add value to raw cloud components. This is a sound strategy for differentiation among cloud storage providers large and small.

The large providers share the same blind spots that plague the component makers of any market: poor end-user support, zero customization, minimum feature sets, minimal to no service-level agreements, or abysmally complex billing and provisioning systems. The opportunities in cloud lie in value-add. There is a rich ecosystem forming above the so-called raw cloud service providers, and there is plenty of opportunity there.

Andres Rodriguez

About the author:
Andres Rodriguez is the CEO and founder of Nasuni, a Natick, Mass.-based cloud provider that specializes in Storage Infrastructure as a Service -- a complete, unified and cloud-based storage system -- for globally distributed organizations.

Prior to founding Nasuni, Rodriguez was chief technical officer of file services at Hitachi Data Systems and CTO of The New York Times.

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