In an earlier blog, I analogized cloud services to the traditional broadcast and entertainment industry, particularly around the ability for you to create content and experience a huge virtual world. There is also a strong comparison in the requirements and heavy infrastructure costs for cloud service providers, and the ongoing expense for hosting and delivering the “content” as well as building on it (just like the broadcast industry must invest in doing sequels or series episodes).
Not surprisingly, many consumer-facing cloud services are borrowing heavily from the broadcast world in another way — their business model, or specifically how they charge and monetize for their services. In this market, there is a huge focus on customer acquisition costs and retention. Like the Nielsen Ratings for broadcast, the cloud services world focuses on UVs or unique visitors, needing to drive as much traffic to their sites and content as possible.
In this model, rather than charging the customer for the content, advertisers pay for getting the attention of those customers. In fact, “FREE” is probably the most powerful word in the cloud. So much so that we as an industry has even coined the term “FREEMIUM”, which is when the bulk of the users get the basic service for free while a small fraction of the users upgrade to the premium version for a subscription fee.
Most of us intellectually get that nothing in this world is really “free”, but we still are drawn to it. What it suggests is that we are willing to do any other form of value exchange as long as we don’t have to open our wallets. Most of us seem to place much less value on things like time and attention, personal information, our social or professional network, etc. So, just like the broadcast industry, we accept advertisements being thrown at us for the free content, and those of us that want to get the ad-free version, we open our wallets and cough up a few dollars.
Because these services make their revenue via advertising, it is in their best interest to learn as much about you as possible, in order to tailor the ads you see and drive the optimal value for their advertisers. For example, when I search on Google, it knows I’m in Seattle and shows me Seattle ads. Groupon targets me the same way.
Conversely, business-facing cloud services are employing more traditional subscription models to drive their economics and monetization. The reason is fairly simple. Unlike consumers, professionals and businesses expect to pay for the service they receive and in return receive a certain quality of service and service level agreement around reliability, security and privacy. Even though most business customers pay for the service, the FREEMIUM model is also becoming popular here to get customers in the door and trying the service, thereby lowering the friction and customer acquisition costs.
Just like other areas of business IT, the cloud is experiencing the “consumerization of IT”. The good thing about this trend is that business users are starting to expect an experience and ease-of-use similar to consumer-facing services. The down side is the blurring between a service provider’s underlying business model, as consumer-facing monetization models (and thus associated lower reliability, privacy and security) bleed over to the business side.
Consumer-facing service providers have the DNA of collecting and analyzing as much user information as possible to help advertisers (their real customers) target the users to maximize ROI. Business facing service providers are expected to deliver on a fairly different level of service in terms of reliability, security and privacy.
Google’s recent announcement of G-drive is a case in point here. If you view the service as a consumer-facing service, it is a very aggressively priced offer, where the terms of service enable Google to subsidize the price by giving itself access to the user’s information. This makes complete sense for Google as a consumer-facing cloud provider that generates the majority of its revenues through advertising.
However, the same service used by business users would not be appropriate if their security and privacy expectations aren’t aligned with Google’s terms of service.
Unfortunately, the onus is on the subscriber to read the fine print and understand where a cloud service provider is drawing the line. The broadcasting world created a rating system for us to understand the potential risks of watching certain content, but we have yet to create a standard for evaluating cloud services and quickly understanding what it means for the security and privacy of our personal information or data.