A double revolution is happening to digital content. First, the companies that sell most of the content we consume are suddenly being forced to compete with most of the cloud companies that store and stream that content for them. Second, so much content is streamed or stored in the cloud that consumers no longer actually own or possess any of the content they pay for. This article examines these fundamental changes to content distribution and ownership.
For years, Dropbox has probably been the best-known file sharing and cloud storage service for consumers and small businesses, though, despite what many people may think, it has not been the only one. There were always others like Box and Google Drive, to name just two. Yet, while the others gave Dropbox a run for its money, they never really gave it much competition. That is likely to change soon (at least for business clients) because a very big player has entered the market. That player is Amazon.
Amazon Zocalo is certain to give Dropbox a serious headache for a number of reasons, one in particular: Dropbox doesn’t own its own servers; it rents space on Amazon’s. So, if Amazon chooses, it can undercut Dropbox’s charges from the start. In fact, that’s just what it has already done. Zocalo is priced at $5 for 200GB of storage per month. And as at July 2014 (when Zocalo launched), this was about a third of what Dropbox was charging for almost identical offerings. Dropbox has since responded by increasing the storage allocation on its pro offering.
No doubt, Zocalo is unwelcome news for Dropbox, yet Amazon’s venturing into this new territory could well backfire on them. Many business commentators question the judgment of a company like Amazon entering so many new markets, competing with its own customers already in those markets, and then undercutting them. Yet it doesn’t seem to bother Amazon. Indeed, its Instant Video streaming service is a direct competitor of Netflix, and Netflix, like Dropbox, is hosted on Amazon servers. That seems to upend traditional business models, yet Amazon doesn’t stop there.
Amazon recently launched another new service, this time for the book reading public, called Kindle Unlimited. As the name suggests, subscribers have unlimited access to eBooks and audiobooks for a monthly subscription. A monthly fee of under $9.99 gives you unlimited access to over 700,000 titles and thousands of audiobooks on any device. The service, nicknamed “Netflix for books” by some, follows the Amazon practice of competing directly with its own customers, in this case, book publishers, and authors.
Competing with its own customers is a curious strategy for any company. It is as if a bank examined its customer records and then decided to establish subsidiary businesses to compete directly with the more successful customers. This analogy is only partially accurate. Few bank customers would be in banking or similar industries, whereas Amazon has been in the online content delivery and related services business for many years. So Amazon is not diversifying into entirely new markets when it establishes subsidiaries that compete with the likes of Netflix and Dropbox.
Nevertheless, the company’s strategy risks scaring off potential new customers and driving existing ones into the arms of competitive cloud services like Microsoft and Google. That could easily happen since any company using external servers has no choice but to reveal critical business information like its aggregate customer numbers and at least some of its operational methods to the host company. Amazon may give cast-iron guarantees of confidentiality and arm’s length procedures, but it seems reasonable to assume that any business that discovers Amazon has suddenly become a direct competitor would feel vulnerable and prefer not to use that competitor’s servers, if they had a choice.
Cloud storage and related services are changing not just companies’ business models and modus operandi, they are also changing the way individuals consume digital content. Soon, consumers will own very little, if any, of the digital content they consume. Indeed they won’t ever really possess it. That is already happening with eBooks and music.
In future, the norm for all digital content will be for users to stream it from the cloud and pay a usage fee just like they currently do for electricity and water, and once they use it, it’s gone. Digital content is quickly becoming just another utility controlled by a very small number of very large companies.