Consumer cloud market grows rapidly, providers face many challenges

It's no secret that the consumer cloud, especially for storage, is growing rapidly. But it's unclear whether providers are making much money from it.

Editor's note: This the first part of a two-part feature story on the challenges and opportunities in consumer...

cloud services.

A growing number of consumers are clamoring for cloud-based services, yet with so many of them using only the small amount of storage that companies offer for free, it's unclear whether cloud service providers are actually making much money from the consumer cloud boom.

It's hard to know whether companies are making money … but clearly they do face challenges in the consumer market.

Jagdish Rebello,
director/principal analyst, IHS iSuppli

The number of personal subscriptions to cloud storage services -- one of the most active areas of the consumer cloud market -- easily surpassed previous projections that estimated 500 million people would sign up for them last year. Within the first half of 2012 alone, worldwide subscriptions had already exceeded 375 million. Subscriptions to both free and paid cloud services are expected to climb to an estimated 625 million in 2013, then doubling in the course of four years to reach 1.3 billion by 2017, according to market intelligence firm IHS iSuppli Corp.

Jagdish Rebello, director and principal analyst with IHS, noted that cloud is a "game changer" and that more than 50 companies currently have a sizeable stake in consumer cloud services. Some of the bigger companies like Amazon, Apple, Google and Microsoft are selling cloud storage services at the same cost or even below the cost as similar consumer offerings by smaller providers, Rebello said.

Because the business of providing consumer cloud storage can be costly, Rebello believes many in the industry could end up losing money if it's their chief source of revenue. So he expects to see plenty of consolidation among providers in the next year or two, particularly as some of the smaller players struggle to compete with the tech giants.

"It's hard to know whether companies are making money," Rebello said. "But clearly they do face challenges in the consumer market."

Consumer cloud users careful about privacy, costs

Even with the growth in consumer cloud services, those who study the industry say the cloud is not always an easy sell. One of the most basic hurdles: Most consumers are unsure what cloud even is.

"When we asked consumers whether they know what cloud computing is, 60% said they had heard of it but didn't know what it was," said Mike Jude, program manager at Stratecast, a division of market research firm Frost & Sullivan.

Meanwhile, Jude noted that many people are unaware that they're already using various cloud-related services, largely to manage and store user-generated or purchased content, including music, pictures and videos, much of which can be accessed and synced across devices like smartphones, tablets and PCs. Email, he noted, remains one of the biggest cloud services in the consumer space -- a place to park information on the Web, rather than on local machines.

"On the consumer side, cloud is a really healthy market that is going to continue to expand," Jude said.

Even when consumers are aware of how cloud works, Rebello said providers encounter other roadblocks to getting people to sign up. First, many consumers are not comfortable with the notion of putting their content online because they worry the provider will ignore their privacy concerns or that their content will become a target for hackers.

"There's a learning curve with consumers becoming comfortable with storing content remotely on the cloud," Rebello said. "At the end of the day, the consumer is more confident about something he or she can touch than something that sits on the cloud."

Secondly, when it comes to storing content on the cloud, consumers are realizing they need to be more judicious about what they store -- especially if they don't want to use up too much space and push their monthly subscription costs higher.

"Today, consumers might capture multiple images on their cameras because they think that storage is free," Rebello said. "They think they're going to go back and edit all of those pictures, but how many do? When it comes to paying a certain amount for a certain amount of storage, consumers will need to monitor their content and modify their digital behavior."

Continue reading: In part two, learn why cloud providers like Box and SugarSync are seeing success with the "freemium" model.

About the author:
Dina Gerdeman is a Boston-area-based freelance writer and editor covering business news and features.

This was last published in March 2013

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Is the consumer cloud services market worth diving into?