Conversations about life & privacy in the digital age

WHAAAAT? Unlimited storage for $4.99 a month not a viable business model?

In the wake of the news that Mozy is scrapping their ‘Unlimited’ data plans , I figured it would be apropos to write a post on: a) the reasoning behind why we at SpiderOak do not offer unlimited data plans; and b) why we believed early on that it was only a matter of time until our competitors changed their thinking on the unlimited storage plan concept.

As most people can probably understand, running an online storage service (whether backup, sync, sharing, etc…) differs quite a bit from products like share ware or anti virus in that a storage service has a a concrete incremental cost.

To use an example, if an anti virus company attracts a new customer, the incremental cost of servicing this customer is practically zero (or barely visible).

However, when an online storage service wins a new user, the space to service that user has to be present and that cost is definable and necessary to support the user. Of course the law of averages does play a part in the storage business but a given amount of space has to exist before this new user comes onboard.

The cost per user does differ depending on storage architecture, location of data centers, etc… but there is always a cost and this cost increases linearly with the amount of storage used and how active that user will be over time.

At SpiderOak our philosophy is to offer a user secure, friendly, fast, and reliable backup service at a competitive price. In doing so we offer a free full featured service with 2 GBs of free storage (up to 7 with our Refer-A-Friend Program) for anyone who wants to try our service or maybe just doesn’t have that much to backup.

In the case of Mozy, Carbonite, or any other of the ‘unlimited’ backup providers, I think time has shown that the basic premise has changed and will continue to change over time. Users’ storage needs will only continue to grow and we – as service providers – can no longer blindly think of this as a race to the most users by completely ignoring both costs and market trends.

What does this mean for the online storage industry?

Well, I personally believe that within 6 months to a year there will not be any unlimited storage providers left on the market; and should a few remain, very heavy restrictions on file size, file type and amount of devices allowed per account will be imposed (such as is already the case with many of the online backup providers).

In short: There is no such thing as a free lunch. If it looks too good to be true then it almost always is and In the end, we all have to pay the piper.

TLDR: Unlimited backup for a fixed price probably won’t be around for too much longer.

Comments

  1. Alex says:

    I'm curious to what degree SpiderOak overcommits storage capability. Presumably it would be silly to actually back all quota sold 1:1, but how do you decide how much ready-now storage you need to service users' needs? I suppose you could keep additional servers off but ready to be turned on at a moment's notice or something.

  2. Steve says:

    Huh. I dunno, I thought BackBlaze was profitable.

    And, with that $/GB*month is trending way, way down over time, isn't it? It would seem to me that if you could hook people today at $N/month, even if that doesn't cover your costs, that in the future (say, 18-36 months) hard drives will be approximately 1/4th the cost, and your $N/mo will go much, much farther, and you'll be able to make a profit.

  3. Daniel Larsson @ SpiderOak Inc says:

    @Alex. well since we build and run our own storage clusters and data centers we do keep a certain amount of servers/storage-nodes dormant and ready for new user influx.

    @Steve. It definitely is trending down (though not as fast as you would think as we need to run of 'tested' and reliable hardware and can't just jump on the latest and largest drives at a moment's notice).

    However the catch 22 is that as storage costs go down for us, they also drop and even faster for consumers. Increasing storage demand is actually outrunning storage cost drops as of right now. That said, we of course do NOT offer unlimited storage and never have making it less of an issue for us.

  4. Aaron says:

    It may be only 6 months before everyone removes unlimited plans. But it's a matter of when, not if, unlimited storage is a feasible option for a fixed price plan.

    That being said, if your costs are linearly associated with storage capacity, you should be charging users on a per-unit basis. Arbitrary caps are easy to bill and maintain, I suppose, but charging a user per gigabyte with a reasonable gross margin seems to make a lot of sense considering your reasons for not offering an unlimited plan.

  5. @tamgo says:

    I've been a happy backblaze user for almost two years now. They don't even bother offering per GB plans. I understand that online data has an incremental cost, but said cost is one if the most quickly diminishing in the industry.

    At the moment it's very difficult for a competitor to convince me to walk away from hablar.

  6. willemijns says:

    I think increase price (also 4 old users) *AND* decrease capacity is not a good idea…

  7. Reddit User says:

    I see what you did there

  8. DanM says:

    I recently switched to Crashplan for 2 reasons: 1st so my father could backup to my computer (he has just under 3 Gigs) and the 2nd reason was because I was on a $20/month Spideroak tier but I only needed about 106-110 GB total. On Crashplan I save 8 bucks per month. I know it doesn't seem like much, but I'm trying to keep my bills down. I do still think Spideroak is a nice product.

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  10. Zachary Klein says:

    Looks like CrashPlan is out to convince us otherwise. This video is almost certainly a response to this post (and others that express similar sentiment). http://www.youtube.com/watch?v=vG_e2dyJ570

    I'm betting that unlimited data storage will be around for a long while yet. And if SpiderOak hopes to compete successfully, they better get in the game instead of declaring everyone else a loser.

  11. Jeet says:

    Mozy had been highly limited from it's starting only, so much like Backblaze et al. If you delete a data in your Mac it to gets deleted in the Mozy, Backblaze servers. This felt nothing short of pure restriction. But our saviour is CrashPlan : http://www.crashplan.com . Its pure bliss and no frills backup. And the files don't get deleted even when I delete it from my Macs. I don't wanna sound bad, but yours and Mozy's business are so different altogether where you are more comparable to Dropbox or Syncplicity. So no need to get happy on this news that Mozy dropped unlimited plans ;)

  12. Oli says:

    It's okay to charge per storage units used. But 100GB increments for $10 is not very fine grained. Why should I pay $10, when I use only 10GB or $20 for 101GB?

    You cannot trash the unlimited storage offers, when you have a similar business model. Let pay the users, that only use a few GB for the users, that use 100GB.

    $10 for 100GB is $0.10 per GB, when you really use the 100GB and this is not cheap at all. If you just use 10GB, you pay $1 per GB, which is really expensive.

    I understand you arguments, but it's not an attractive plan until you lower the cost per GB and charge in smaller increments.

  13. Steve says:

    I have to agree with Oli. I've been putting off paying any money to SpiderOak even though I use it all the time. I just keep my critical files on it, so as to keep the usage below 2GB. If you offered a 20gb plan for (say) $20/year, I'd probably already have signed up for it. I think you're choking your own low-end customer base with such a high initial tier. I supposed I'll crack the 2GB limit at some point and then perhaps have to pay $100/year, but I might instead choose to trim some of my less important files out of the archives and back them up to local USB..

    I realize you probably don't want to bill out at $2/month but maybe offer some lower-end pricing tiers on a yearly basis only? Just some thoughts for you.

  14. Tim says:

    I completely agree with the suggestion to offer something like 20gb for $25 a year.

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  16. Daniel @ spideroak.com says:

    We have considered making our pricing more fine grained. However, so far most of our clients are 'ok' with 100GB increments and the downside with offering more fine grained pricing is that it makes our pricing more complex and we love keeping it simple.

    With friend-referrals you can get up to 7GB free (+1GB per referral) and for students we do offer 50% off through our student/education discount (https://spideroak.com/education).

    That said, we will revisit our pricing plans shortly as we are re-tooling our sign-up process and will be presenting it shortly.

    Daniel

  17. Daniel @ spideroak.com says:

    Also; Of course we are not trying to 'trash' unlimited storage providers. Merely lend our opinion/knowledge when it comes to how online storage pricing models 'work' and point out that we think that unlimited storage is just not a viable model to run a business on in the long run.

    We would love to be able to offer 'real' unlimited storage to all our customers for cheap, however we just can't find profitability/stability in doing so, and when it comes down to it we suspect that most of our customers like the idea of being able to trust that we are a stable company that can prosper and guarantee longevity in our business and technology.

  18. Daniel Feenberg says:

    "we like to keep it simple"
    Well, would it be simpler or more complicated to buy gasoline in 10 gallon increments? You could never top up your tank, and would feel cheated if you did stop for gas and your tank only needed 8 gallons. I don't know why people imagine forcing large quanta on purchases of bulk material/service is simplication. It is be more complex, especially for the few people at the breakpoint, who have to worry about a big increase in cost for one extra byte.

  19. phil says:

    hey, why are you all talking about costs? Please… think about how many online storage companies offer "zero knowledge"-encryption?

    THAT is the key and I'm happy to pay SpiderOak in order to have this feature. SpiderOak don't have to be the cheapest for me. It's your data! You get what you pay for and as mentioned above SpiderOak is offering student discounts.
    I'm spending more money on beer than on SpiderOak -keep up the great work. All the best from Berlin / Germany.

  20. Luke Stanley says:

    What about the exponentially decreasing cost for storage? A static fee for a dropping exponential may start to look like a sweet deal in the long run.

  21. Luke Stanley says:

    Dropbox shows the danger of "zero knowledge encryption".

  22. Luke Stanley says:

    Oops I see Steve alluded to the statistical trend.
    and Daniel Larsson @ SpiderOak Inc chimed in.
    Was disappointed this wasn't talked about in the post itself.

  23. Luke Stanley says:

    I'm thinking about Crashplan for my family, I saw their CEO addressed this issue directly. The lack of clarity here is embarrassing.

  24. Aussie says:

    I was about to get a Spideroak account when i discovered Crashplan. Privacy of my data is critical and so the Zero knowledge approach was tempting, i had a bit over 100gig so needed to purchase two 100gig blocks which seemed a waste ( and a bit of a gouge from Spideroak) Adding a strong private key to my crashplan+ account i think I have the security i want and more storage

  25. Zachary Klein says:

    Over one year later, and CrashPlan is still going strong with unlimited storage plans. I appreciate the points made in this post but the current pricing scheme with SpiderOak is a garauntee I won't be switching any time soon. I'm paying $12/month with 2.6TB of data in the cloud (across six computers). I'd be willing to pay substantially more than that, but $260 every month? I don't think so.

    SpiderOak needs some real leadership in this area if I'm ever going to be able considering them again.

  26. Ciaz says:

    Scam!!

  27. Jigsaw says:

    Prot!!!

  28. Demetri says:

    Cost is not just $/GB. It is per $/GB/Month. Let's assume users are increasing more than linearly, say y=ax^2+bx+c. Now, if users upload a fixed amount of data per month, we have to sum up all the users over time to get the total storage. Thats the integral. Now we're at y=(a x^3)/3+(b x^2)/2+c x+d. Divide by x to get your marginal cost per user. You see it is still on the order of x^2. In other words, it doesn't scale. You need a retention policy and/or cap. Or you come with the S3 model of $/GB/Month. Or Glacier.