By QUENTIN HARDY
SAN FRANCISCO — Nothing concentrates minds at a tech start-up like living in the middle of a price war between Amazon and Google.
Just ask executives at companies like Box, Dropbox and Hightail. They pioneered a new kind of Internet service that allows people and companies to store all kinds of electronic files in an easy-to-use online locker. But as often happens, the much bigger companies liked the idea so much they decided to do the same thing — at a much lower price.
“These guys will drive prices to zero,” said Aaron Levie, co-founder and chief executive of Box. “You do not want to wait for Google or Amazon to keep cutting prices on you. ‘Free’ is not a business model.”
So how do you avoid free? Box is trying to cater to special data storage needs, like digital versions of X-rays for health care companies and other tasks specific to different kinds of customers. Hightail is trying to do something similar for customers like law firms. And Dropbox? It is trying to make sure that its consumer-minded service stays easier to use than what the big guys provide.
“It’s very tough just to be in the storage business,” said Brad Garlinghouse, the chief executive of Hightail. “We don’t think that is what we’re selling anymore.”
In the tech industry, they call this sort of reinvention of the core business model a “pivot.” Another way to describe it is a fight for survival.
Box, founded in 2005, has attracted $512 million in investment, and in March it filed papers for an initial public offering of stock. In July, the company said it had 39,000 businesses paying $15 to $35 a month a user. It is hard to know how many people that is, since some businesses have just a couple of people, and others include General Electric and Eli Lilly.
Dropbox has 300 million customers worldwide and actually runs inside Amazon Web Services, as do parts of Box. Many Dropbox customers pay nothing and get two gigabytes of storage capacity a month, the equivalent of 1,000 books or seven minutes of high-definition television. A version for $10 a month offers 100 gigabytes.
“These guys will drive prices to zero,” said Aaron Levie of Box. On cutting prices, he added, “ ‘Free’ is not a business model.”
STEVE JENNINGS / GETTY IMAGES FOR TECHCRUNCH
Hightail, which used to be called YouSendIt, says it has over a half-million business customers paying $25 a month or more, depending on the features chosen.
“There’s a place for all of them,” said Amita Potnis, an analyst at IDC. “Amazon’s focus is really computing itself. The smaller ones have to focus on ways businesses actually use it.” For example, she said, the services can help companies collaborate with each other online instead of sending emails back and forth with attachments.
While devices and apps get most of the attention, data storage is every bit as important, particularly as objects like phones, tablets, cars and thermostats become appendages of the Internet. Throw in trends like collaboration and big data analysis, and all those bits of data become more dynamic than something in a file cabinet. They are fluid and being entered and retrieved from many points.
Managing all that data should be a good business.
The problem for everyone is price. Amazon and Google have for years decimated competition in their respective fields of Internet advertising and retail. As the two companies move to dominate cloud computing, including online storage, they are turning that relentlessness on each other.
In March, Google celebrated the unification of several cloud computing services with price cuts of 68 percent for most customers, to 2.6 cents a gigabyte a month, about one-quarter the price of Dropbox’s premium consumer service.
Amazon’s Web Services, which had cut prices at least four times since 2008, responded with cuts of its own, including one cut to 2.75 cents a gigabyte for large amounts of storage, and just a penny a month for data used less frequently. It has made further price cuts on other types of storage since then. Many expect Microsoft, which runs its own big cloud business, called Azure, to follow with similar cuts.
Even by the standards of computing, where services seem almost invariably to become cheaper and faster, storage prices have had an exceptional fall. The first gigabyte storage device in 1980 typically cost $120,000 and weighed 550 pounds. Amazon’s cloud-based storage might cost 12 cents a year.
None of the smaller online storage companies doubt that Amazon and Google can make seemingly impossible pricing moves. Both companies also have a scale that means even the tiniest profit can be huge. A.W.S. brags that almost all of Netflix, and Amazon itself, is inside its cloud, along with hundreds of other substantial companies.
Apple’s iCloud storage service and other parts of Apple, along with operations at several large banks, run inside A.W.S., say people familiar with the service who spoke on the condition they not be named so they could sustain relations with the powerful cloud company.
Amazon would not comment on confidential customer agreements. An Apple spokesman noted that Apple had its own data centers in four locations in the United States and said that “the vast majority” of data in services like iTunes, Maps and the App Store ran on its own computers. Apple uses other facilities as well, he said.
Google does not have anything like the Amazon customer list, but its computer network is probably the largest corporate network in the world. It includes custom-made computing and power systems and several thousand engineers to keep it running. According to one person with knowledge of the system, Google spends about $2 billion a quarter on its computing infrastructure.
Google would not comment on its costs. In an email, Tom Kershaw, a product manager for Google’s cloud service, predicted more cost-cutting. “As more customers store more information, for longer, we’re able to make gains in efficiency and pass these savings along to the customer.”
Both Box and Hightail now say they assume that they will offer customers unlimited storage free and push their costs into the prices they charge for other services. “At this point, it’s better just to say ‘unlimited,’ ” Mr. Levie said. “The thing to do is take into account why someone is storing something online and what their needs are.”
Box has hired people with specialties in health care, media and entertainment, hospitality and retailing. Dropbox still has supposed limits on storage in its business offering, but they start at a terabyte, or 1,000 gigabytes, and customers can upgrade from there with seemingly no fee.
This niche approach could work, provided the big companies do not go after these industry-specific storage markets or build more consumer-focused service offerings. Mr. Levie said he thought that was unlikely. “No one is going to build Google Health Care,” he said.
Google’s Mr. Kershaw differed. “Industry-specific solutions are the wave of the future and a key part of what Google is building for our customers,” he said. (NY Times)[eap_ad_3]
By QUENTIN HARDY