Industry analysis Consumer Cloud Storage


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An industry analysis of the consumer cloud storage industry, focusing on the needs of consumers in regards to migrating to complete cloud stroage versus hybrid solutions.

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Industry analysis Consumer Cloud Storage

  1. 1. What will it take to “Cross the Chasm”?An industry analysis of the consumer cloud storage industry and the adoption lifecycle of exclusive cloud storage Niven Singh December 3rd, 2012
  2. 2. Table of Contents Table of Contents ........................................................................................................................ 2 Executive Summary .................................................................................................................... 3 Background & Industry Development ........................................................................................ 4 Industry Analysis ........................................................................................................................ 6 Crossing the Chasm ................................................................................................................ 6 Results ......................................................................................................................................... 9 Competitive Position Compass ............................................................................................. 10 Moving Forward ....................................................................................................................... 12 Closing ...................................................................................................................................... 14What will it take to “Cross the Chasm”? Niven Singh 2
  3. 3. Executive SummaryIn 2011, the average storage capacity of digital content per household reached upwards of464GB, with forecasts suggesting average capacity to increase to 3.3 terabytes in the nextfour years. The need for digital storage has greatly increased over the last decade and as aresult, alternative storage solutions have emerged; most recently, consumer cloud storage1.According to a study by Ipsos Market Research regarding cloud storage use in 2011, 66% ofrespondents (18 years and older) claimed familiar and interest based use of the cloud.Partnered with Gartner’s forecast that predicts worldwide users will comprehensively gofrom storing 329 exabytes to 4.1 zettabytes in 2016, this indicates the need and positiveattitude towards consumer cloud storage as a digital storage alternative.With cloud storage subscriptions surpassing projections for 2012, the number of usersworldwide topped 375 million at the end of Q2 2012. The original forecast for 2012 was500 million at most. Subscriptions are expected to jump even higher in 20132. Cloudstorage offers a number of benefits in its adoption3 like mobile access, ease of sharing andstoring and is cost effective storage option. However, consumers are not willing tocompletely transition to cloud storage yet or considered it as a primary solution for theirdigital storage needs. Concerns of cost, security, recovery and more have limited users frommoving completely to the cloud, relying on hybrid storage solutions and on premisebackups. Therefore, the question emerges – what will it take for complete consumer cloudstorage to truly “cross the chasm” and become a competitive storage solution for the massmarket?Using concepts from Geoffrey Moore’s popular book Crossing the Chasm: Marketing andSelling High-Tech Products to Mainstream Customers4, this report will focus on applying andanalyzing the Technology Adoption Lifecycle (TALC) and Competitive Position Compass inrelation to consumer cloud storage. The frameworks selected for this analysis accounts forthe complexity of the potential adoption lifecycle of consumer cloud storage and providesinsightful support to recommendations. These recommendations relate to how industryplayers should concentrate on addressing prominent user concerns in order to betterappeal to the mass market.A background of the cloud computing industry will set the foundation for applying theframeworks mentioned. That followed by an explanation of individual needs of eachsegment in the TALC will illustrate the diverse profiles of various users and lend itself toidentifying where the “chasm” lies in the market. Lastly, a discussion of consumer concernsand hurdles facing cloud storage providers will lead to recommended steps providers needto take in order to cross the chasm into mainstream usage.1 Moore, Geoffery. Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. PrintWhat will it take to “Cross the Chasm”? Niven Singh 3
  4. 4. Ultimately, cloud storage providers need to overcome the critical hurdle of consumer trust.Like all new technology, developing trust, accessibility and a “whole product’ are critical tomainstream success. Consumer cloud providers must address user concerns and needs soas to appeal to the mass market. By applying the results of this analysis and implementingsuggested changes, complete cloud storage will inevitably cross the chasm.Background & Industry DevelopmentDigital storage solutions first emerged in the early 1950s, with the first hard drive built in1953 by IBM. The recognized need for rapid random access at a low cost was apparent, andwith this new invention, a new level of computer data storage was created5. Once harddrives entered mainstream markets, the maximum capacity of a hard drive for person usewas 5 megabytes. Fast forward to the mid 1990s, the typical hard drive capacity in a PCwas 1 gigabyte6. Comparatively, of January 2012, the average desktop hard drive held 500-2000 gigabytes, with additional external hard drive options up to 4 terabytes7. Theexponential growth in storage needs of users has resulted in 91% of adults in the UnitedStates using computing devices relying on digital storage8.Similarly, the concept of cloud computing was coined in 1961 by John McCarthy9. Duringthe 60s and 70s, the development of cloud computing continued organically as networks,emails and instant messages were developed. Fundamentally, the concept of cloudcomputing today is the same as it was in the 60s – rapid access to digital data stored in anon or off premise server, accessed via network cables or in today’s age of technology, viathe internet. Since then, cloud computing gained popularity as a result of’slaunch in 1999 of the first site to deliver software-as-a-service (SaaS) through a website –officially known as “cloud computing”. As time progressed and the burst of the dot combubble, technology companies redefined themselves, integrating the internet and cloudcomputing as a core component. In 2002, Amazon introduced Amazon Web Services10 andthen in 2004, Facebook emerged, changing the way people communicated and storedphotos and videos11.Since then, a number of advancement and product offerings emerged from key industryplayers. Amazon expanded its web services department offering Elastic Compute Cloud(EC2). This program allowed users to access and run their own programs virtually, all inthe cloud. Amazon also introduced Simple Storage Service (S3) in 2006, formally5 will it take to “Cross the Chasm”? Niven Singh 4
  5. 5. introducing pay-as-you-store models to the industry. then introduced theconcept of platform-as-a-service (PaaS), allowing companies to develop and run theirbusiness in the cloud. Then in 2009, Google Apps premiered, allowing people to create, editand store documents entirely in the cloud12. Google was one of the first providers to offerfree access to online storage to users with a Google e-mail account. Along the same line,Apple13 provided exclusive cloud storage access to Mac owners through MobileMe, laternamed iCloud services. These companies have continued to offer cloud services and storagecapacity as an added benefit to other offerings.Because cloud storage is not the core offering of many of the aforementioned companies, itis likely that a number of new entrants will rise. This will raise the level of competition inthe market, providing consumer with options. Although the main providers are companieswith strong brand reputations, they likely will have to fight to keep their current marketshare. As indicated by the number of current players in the industry, costs to enterthis market are low, as are costs to develop a product or new service. As a result, smallercompanies like Dropbox14 and Evernote15 have emerged, offering cloud services exclusively.There may be a potential influx of smaller enterprises offering solely cloud storage services,ultimately providing more opportunity for consumers to find product offerings that alignwith consumer needs.The ease of access to the internet has resulted in mainstream integration of cloudcomputing into daily operations, both personal and professional. For companies, thismeans savings in business operations and alternative solutions for IT needs. For thepersonal consumer, accessing the cloud is an integrated aspect of society’s digital footprintwith the use of social media and instant communications. In 2011, 66% of internet users inthe United States used cloud based storage or backup services16. Looking globally, a casestudy by AMD found that 70% of respondents indicated they are either using or currentlyinvestigating cloud computing for remote storage17. These statistics point to the adoptionof cloud computing as a storage alternative.Considering the cloud computing industry as a whole, there are a number of factors thatwill influence the trajectory of the cloud storage industry. Specifically, R&D and technologyinnovations will play a critical role in the ever changing nature of the industry. Theconstant incremental changes have shaped and will reshape the available service offeringsand the overall competitive landscape. Other forces that will affect the industry range frommarket competition, government intervention or deregulation, policies and the social anddemographic practices. These factors have and will continue to influence the adoption ofcloud product offerings.12 will it take to “Cross the Chasm”? Niven Singh 5
  6. 6. The most critical hurdle the industry is currently facing is the lack of trust establishedbetween consumers and cloud storage providers. According to a study done by Citrix in theUS earlier this year, the top three reasons adults (18 and older) are hesitant to use cloudcomputing services are cost, security and privacy concerns. As stated earlier, consumersare willing to store personal digital materials on the cloud. Nevertheless, they are notwilling to move solely to the cloud, giving up the option of on premise storage (i.e. – harddrives). Additional apprehension lies in regards to accessibility and regulations, as well asbackup and recovery. At the moment, an on premise back up is the only guaranteed methodof accessing and recovering data if the cloud goes down. Therefore, consumers arereluctant to detach from a “hybrid” storage solution, both on premise and in the cloud, togive up control over their content. Consequently, cloud storage has yet to become the firstchoice of digital storage alternatives and completely transitioning to the cloud seems to befar fetched.Industry AnalysisIn the following section, the frameworks from Geoffrey Moore’s book Crossing the Chasm:Marketing and Selling High-Tech Products to Mainstream Customersi18 will be the basis ofthis report. The “Crossing the Chasm” and “Competitive Position Compass” frameworks willbe introduced and applied to the cloud storage industry, with specific focus on consumerscompletely transitioning to cloud storage, ultimately giving up hybrid storage. Theframeworks will be defined, configured and applied to determine what factors cloudstorage providers and the industry as a whole need to consider integrating in futureattempts to cross the chasm.Crossing the ChasmAuthored in 1991, Moore developed this framework to describe and identify the crackbetween two specific stages of the technology adoption curve. Crossing the chasm arguesthat as technology moves through the TALC, the transition between Early Adopters and theearly majority is where difficulty lies. It is here that companies tend to falter in their abilityto capture the early majority due to their incapability to tailor to the different needs of eachgroup. Furthermore, this framework is one that is closely related to the innovationdiffusion curve, with identical consumer segments and is commonly used in collaborationwith the competitive positioning compass to conduct strategic planning.Looking specifically at the TALC (Figure 1.1), there are five domains illustrated in theframework: Innovators, Early Adopters, Pragmatists, Conservatives and Laggards. Eachgroup has a persona that encompasses distinctive needs and concerns with regards to howthe group perceives innovative technology. Take note of the unique differences in outlooksbetween the Early Adopters – the Innovators and Early Adopter combined – and the18 Moore, Geoffery. Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. PrintWhat will it take to “Cross the Chasm”? Niven Singh 6
  7. 7. Pragmatists. That is where “the chasm” sits in the consumer cloud adoption lifecycle, and isthe transition technology firms struggle with most. Below is a description of each segmentpersona: (Figure 1.1) Technology Adoption Life CycleInnovators, also known as tech enthusiasts, make up roughly 2% of the market. . This grouptends to seek the truth and appreciate technology for the sake of it. Although they are thefirst adopters of a new technology, there is little monetary profit to be gained from winningover this group. Their real value lies in references that will transfer over to the next stageby introducing new technology with a form of authority. Their risk tolerance and informalexpertise lend to becoming a trustworthy reference for the Early Adopters. Despite beingfairly price sensitive, their feedback is valuable and essential to capturing the wholeinnovator group, and the next adoption group.Early Adopters, or visionaries, compose 15% of the market. They are the believers in a newproduct or service and are crucial to the high tech industry because they are willing toinvest and take high risk. They seek strategic opportunities and high returns, and arecomfortable with chasing after evolving technological dreams as a result. Because of theirwillingness to invest and take risk, this group of adopters are hard to satisfy and demand alot from their product or service. As a result, they are likely the driving force behind acompany’s “big break”. Therefore, this is the first cash influx for a company. With that,these Early Adopters will require testing and want to help evolve the product or serviceuntil they are content and perceive potential mass market appeal.Pragmatists, or the early majority, make up one of the largest group in the technologyadoption lifecycle. Capturing 34% of the market, these adopters are critical and pricesensitive. Despite having resources, they are looking for the “whole product” that offersincremental change, a cost benefit to purchasing and appreciate reliability, evidence andintegration. Pragmatists rely on a competitive market as it breeds proficiency and suggeststhat the product is credible if offered by a number of large providers. They appreciateWhat will it take to “Cross the Chasm”? Niven Singh 7
  8. 8. purchasing from market leaders because they know an ecosystem will be createdsurrounding the product. This group is the most difficult to persuade as they criticallyreference their peer group before making major technology purchases. Unlike the twoprevious groups, Pragmatists only find value in likeminded referrals and disregard theInnovators and Early Adopters.Conservatives, also known as the late majority, make up an identical 34% of the market.This group shares all the concerns of the Pragmatist group, with one added issue. Unlikethe early majority group, Conservatives are not confident in their ability to use technology,therefore are not comfortable enough to purchase it until they are convinced there is asupportive environment surrounding a product or service. As a result, Conservatives waituntil something has become a standard product to buy from a big, established company.Because this group makes up a third of the buying power, it can be a highly profitablemarket segment to target. Until a product or service has been established for an extendedperiod of time, proved viable and provides extensive support, this group is likely to holdout on adopting.Laggards, or lastly known as skeptics, are the consumers that simply don’t care for newtechnology for various reasons. This group is typically regarded as not worth targeting. Asa product progresses through the adoption lifecycle, by the time it reaches this group, itoften becomes self-cannibalizing. As consumers, they tend to point out flaws anddeficiencies in products they are uninterested in and have no drive to join the technologicalworld. The inherent purchase of technology will be forced by unavoidable change ortechnology being ingrained in another product that they are unaware of.Because the expectations of each group are characteristically different, if a company fails totarget their product to a specific group, and markets to a broad, generic audience, it is likelythat the technology will not cross the chasm and likely never will. By targeting each factionspecifically, a company can leverage each segment’s expectations to better respond todemands and concerns. To better understand the differences between the various groups,below is a wide-ranging list (Figure 1.3) of concerns voiced by members of each adoptionlifecycle segment pertaining to adopting exclusive cloud storage. Gathered through primaryand secondary research, the concerns by segment further support the distinct differencesin purchasing habits, demands and concerns of each group before they are willing to adoptthis particular technological advancement. Technology Adoption Lifecycle Segment Concerns  Encryption Innovators  Privacy  Cost  Privacy  Shared Personal Data Early Adopters  Bugs  Evolution of Product/ServiceWhat will it take to “Cross the Chasm”? Niven Singh 8
  9. 9.  Privacy  Reliability  Backups  Data Loss Pragmatists  Data Access  Integration  Primary and Secondary Reviews  Losing out on physical backups  Quality  Support  Privacy  Reliability  Backups  Data Loss Conservatives  Data Access  Integration  Primary and Secondary Reviews  Losing out on physical backups  Quality  Quality Laggards  Status Quo  Cost (Figure 1.2) Key Concerns by Technology Adoption Lifecycle SegmentResultsIt is clear that the concept of consumer cloud storage has indeed crossed the chasm,supported by the large statistics showing consumer cloud use. However, consumers haveyet to actually adopt the functional aspect and exclusively moved to the cloud. By applyingthe “Crossing the Chasm” framework, it is evident that it has fallen short of the Pragmatistgroup. To get to the right side of the chasm, cloud storage providers need to meet thedemands of the Pragmatist group, as they are the gatekeepers to the mass markets. Thesecustomers want the “whole product” readily available from the onset, and are not willing tocompromise. A key insight to marketing technology in attempts to “cross the chasm”, inthat the former groups (Early Adopters) are willing to take responsibility for piecingtogether a product based on a piece of technology, where as the Pragmatists and LateMajority are not. The argument has been made that typically Pragmatists are choosinginferior products, but if packaged correctly, a “whole product” is considerably moresuperior to this faction. Because cloud storage providers have not been able to create a“whole product” that exemplifies support, cost benefits, evidence and reliability, they willbe unable to convince the early majority groups.What will it take to “Cross the Chasm”? Niven Singh 9
  10. 10. Similarly, in reference to Figure 1.2, a number of the concerns voiced by the Pragmatistgroup have yet to be formally addressed or provide evidence. Because this segment hasspecific needs that haven’t been prioritized by cloud providers, these priorities at aminimum are the basis for why consumers are continuing to use hybrid storage solutionsrather than exclusively storing data on the cloud. Although customers are curious andinterested in cloud storage, the reliability aspects are still lacking to meet the requirementsdemanded. As a result, the cloud storage providers are the ones blocking themselves fromcrossing the chasm. Despite being well established key players in the market, they haven’tincorporated the aforementioned concerns, limiting available options for Pragmatists toselect from, resulting in resistance.This is not the end for exclusive consumer cloud storage. Although consumers are notcompletely dependent on cloud storage yet, it has made great strides and is on the cusp ofdoing so. Data supporting consumer interest and industry growth suggest positive growthin the upcoming three years19. But for consumer cloud storage providers to break throughthe proverbial wall to the mass market, they need to strategize marketing tactics anddevelop a trusting relationship with consumers. They need to integrate the needs andconcerns of their customers and develop a “whole product” to market. By doing so, digitalconsumers will ultimately leave on-premise and hybrid storage solutions behind,preferring cloud storage solutions due to the many benefits.Competitive Position CompassBecause consumer cloud storage is on the cusp of “crossing the chasm”, now is an idealtime for companies to consider more targeted approaches to marketing to varioussegments. Using the Competitive Position Compass20, this model defines valued factors byeach segment at any stage of the TALC. With this model, a company can determine whatwould be most reasonable criteria to target for each group and then build a competitivepositioning strategy around the comparative values that are most relevant. It also identifieswhat criteria each segment in the TALC is looking for based on their placement on thecompass.There are four domains of value in the technology market illustrated in the CompetitivePosition Compass (Figure 1.3): technology, market, product and domain. As a productprogresses through the TALC, the value of each domain alters in relation to which groupvalues it most. Looking at the framework, technology and product are the two domainsmost valued earlier on in the adoption lifecycle, in the tech enthusiast and visionary phase.However, as the technology progresses and “crosses the chasm”, the focus shifts to themarket and company providing the product or service. This represents the transition fromproduct based values to market based values.19 Moore, Geoffery. Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. PrintWhat will it take to “Cross the Chasm”? Niven Singh 10
  11. 11. (Figure 1.3Competitive Position CompassTwo aspects of this framework to keep in mind are the axis. The horizontal axis rangesfrom specialist to generalist, which is indicative of the consumer expertise level. Similarly,the vertical axis ranges from skeptics to supporters, which represents buyer attitudetowards the proposed value proposition offered by said product. Generally, as a productpasses through the adoption lifecycle, the market domain begins in a state of skepticism,eventually evolving into supporters once demands and criteria are met. This is imperativeto understand during the marketing process as it requires moving communications from astate of support and excitement to one of skepticism and disinterest, transitioning productbased offerings to an unfamiliar market oriented space.Another critical aspect of the Competitive Position Compass is the value based adaptation(Figure 1.4). This format of the framework indicates what criteria are required in eachdomain to continue the evolution of the product, moving it through the TALC. As theproduct progresses from the initial technology domain, the evidence needed to appeal tothe Early Adopters differs from that needed in the market domain, which would appeal tothe Pragmatist group. Relating back to the Figure 1.2, the concerns that users voicedcorrelate to the evidence that appeals to each domain. The examples of evidence in eachdomain relate to the various types of confirmation or data that consumers would want toknow before adopting a product. Indicators like demos, third party reviews, benchmarksand endorsements are just some of the value based criteria that are vital to understandingthe demands of each domain.What will it take to “Cross the Chasm”? Niven Singh 11
  12. 12. (Figure 1.4 Competitive Position CompassBy applying the Competitive Position Compass and value based adaptation, it is clearlyindicated that the position of the product in the TALC and the demands and needs of eachmarket segment are critical aspects of appealing to the mass market. To incorporate allaspects, cloud storage providers would need to develop a more market oriented approach,supplemented by the previously established product oriented approach to win over thePragmatic/Skeptics in the market. Based on the prior analysis and background context,cloud providers are in a good position to do. The market is already built on competition,offering variety, opportunity for references and comparison that will eventually satiate thePragmatist appetite if continued. What needs to be resolved is the gap between what theproduct offering and what the consumers want. Once cloud providers are able to provideevidence to the early adopter’s standards, they can begin working on creating the “wholeproduct” that appeals to the early majority.Moving ForwardAs you can see, exclusive consumer cloud storage has yet to completely “cross the chasm”.This is due to a number of issues, primarily, the unresolved gap between the productoffering and consumer demand and the issue of consumer trust. Cloud storage providersare in a position to adjust their product offerings to adapt and overcome theaforementioned hurdles. To address these hurdles, the first step cloud providers need topursue is providing each segment of the TALC evidence to support completely transitioningWhat will it take to “Cross the Chasm”? Niven Singh 12
  13. 13. to cloud storage. In the case of Innovators and Early Adopters, cloud storage providershave supplied sufficient evidence, relating back to the Competitive Position Compass.However, when transitioning to the Pragmatist group, what they demand in terms ofevidence changes. And cloud providers need to adapt to that change. Because of the lack ofevidence, the Pragmatist group will continue to resist completely transitioning to the cloudbecause they have no proof verifying it is a reliable solution for their needs21. Concernsabout accessibility, reliability, backup and recovery are just the tip of the iceberg in regardsto issues that need to be addressed.Once providers are able to address each segments demand for evidence, the next stepwould be to establish their competitive position within the market. Firstly, cloud providersneed to identify a competitor within the market and then differentiate themselves fromsaid competition. The Pragmatist group appreciates competition and a market-orientedapproach. By identifying a direct competitor within the consumer cloud storage market,cloud can and should differentiate themselves by taking on an expertise or niche. Thisdrives competition will invariably creates room for growth and new entrants into themarket. This will also result in opportunities for the Pragmatists and Conservativesegments to research, analyze third party coverage and seek out references, whichultimately will lead to acceptance of a new technology.An example of this would be for Google to identify Apple as its main competitor in thismarket22. By doing so, Google can juxtapose its offerings to Apple’s, illustrating thedifferences in core offerings based on consumer needs. Apple has positioned its cloudofferings as a means of connecting every aspect of one’s digital persona. Google on theother hand is known for its business apps, content creation and storage in relation toacademic and professional work23. Therefore, Google has differentiated itself from its maincompetitor, and can develop strategic and targeted marketing tactics within that niche. Onething to consider is the difficulty associated with determining a direct competitor. Mooresuggests that if a company can’t choose a competitor, it indicates the company is having ahard time finding a clear market differentiating factor. This proposes that a productoffering or company is not ready to cross the chasm.Simultaneously, cloud storage providers need to package their offerings as a “wholeproduct”24. Considering the supplemental aspects Pragmatist and Conservative groups lookfor; creating a product offering that incorporates the generic offer and benefits of theaugmented product combined with the added complimentary additions can prove thedevelopment of an ecosystem. If providers are able to package their product offerings in away that cloud storage can integrate more so with other products, providers will create ademand for it. This is a key selling point that will help transition the product or serviceoffering from one end of the TALC to the other, thusly crossing the chasm.21 http://crossingthechasmreview.blogspot.com22 will it take to “Cross the Chasm”? Niven Singh 13
  14. 14. ClosingRegardless of the current stature of cloud storage technology or the industry as a whole, ifproviders take the initiative and go through the abovementioned steps, exclusive consumercloud storage will cross the daunting chasm. Companies currently are missing the markwith adapting their marketing tactics when approaching the Pragmatist group.Understanding the underlying demands and expectations of this group, and adjusting theproduct or service offering is the only way for a company to move technology into themainstream market. Hopefully, with extensive backup and recovery triggers in place andinsurmountable evidence, consumers will come to trust cloud providers and grant themsole ownership of their digital persona. It will just take repositioning of ones productoffering and a better understanding of the market.What will it take to “Cross the Chasm”? Niven Singh 14