We have been doing a significant amount of research on the consumer cloud as of late and a harsh reality has become clear. Consumers need the cloud — pure and simple. There are known pain points to consumers that cloud solves, yet they are unwilling to pay for it and utilize it to solve some of their technological problems.
As we look across a number of different demographics, we see clear value in the cloud from everything like automatic backing up, picture syncing, file management from many different devices, etc., yet 76% of consumers don’t pay for a cloud service. Most use whatever is free and many seem to navigate with ease a number of free services to keep from paying for it. What baffles me is how the pain point is fully understood.
For example, 20% of consumers in one of our recent studies indicated they manage (delete) photos on a weekly basis to free up more storage to take new photos. 14% engage in this task monthly to make sure they have enough free space for more photos and 5% indicated they have to do this daily. Nearly 40% of smartphone owners manage/delete photos at least once a month to free up more storage so they can take more photos. Similarly, 56% of millennials indicated they have lost an important file due to a computer/OS crash or some other kind of event.
Now, I understand millennials, especially college students, likely don’t have the monthly income to pay for storage. But the point remains, the cloud would solve what is absolutely a known pain point.
When we dig into the specifics of why people are not utilizing cloud services it is a close race between trusting that their data is kept secure and private (44%) and simply not wanting to pay for it (42%).
The cloud would make so many consumers’ lives better when it comes to their devices. One of my theories going forward is companies will start to bundle this cloud service with others like music, TV, or some other kind of cloud subscription which consumers are more likely to pay for and find greater value in. Perhaps what we have concluded is that the cloud, from a storage stand point, is simply a commodity and should be treated and understood as such.
When we dug into this exact idea, we found consumers were quite a bit more likely to pay for a cloud service which delivered entertainment than a cloud service which delivered storage/synchronization. Validating our thought that storage is a commodity and content is king.
I have always been skeptical of the notion that profits flow from hardware to software and eventually to services (cloud). This example clearly illustrates that services too can be as easily commoditised as hardware, maybe even more so. Consider also that although people may pay for music services, content is almost never exclusive and differentiation (and profits) in the music streaming industry is elusive.
This brings up the question of how one can profit from services? We know that having a strong Ad platform can help. Cloud services are probably also good for selling your hardware at a premium, and not the other way around. Cloud can also be used to hook customers to your fulfilment platform. Business is also a possible area where you might profit from the cloud. A lot of this runs counter to the popular notion that profits are in services.
It’s an excellent discussion to be having as AI seems to be poised to be the next big thing; profits in AI could very well follow the same trajectory as the cloud.
Solid points. As I stated some kind of bundle seems clear, so perhaps in Apple’s case these services begin getting bundled into hardware sales or built into Apple hardware upgrade programs? In this case then, as consumer see the value in cloud services drive hardware sales/margins/profits.