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Amazon joins Dropbox clones, hints at cloud storage margins

Upgraded consumer storage service undercuts S3 prices how exactly?

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Amazon.com has become the latest outfit to decide copying Dropbox is a fine idea, further cloudifying its Cloud Drive with a desktop client that does the usual store 'n' synch between multiple devices while also offering some interesting insights into cloud economics.

The nominally-profitable online retailer has operated Cloud Drive since March 2011, when it told the world it was a place one could store music. Allied to the company's Cloud Player, Cloud Drive offered the chance to acquire MP3s from Amazon, store them in the cloud and then play them wherever you could access the net.

In the two years' since, local storage has come back into fashion with Dropbox, Google Drive and Microsoft's SkyDrive all offering the chance to pop files into a desktop folder, have it automatically evaporated into a cloud and also listed by clients on all manner of other platforms.

Amazon's done most of that to Cloud Drive, which now has a client for MacOS and Windows and allows users of the Kindle Fire to see a list of all the stuff users shunt into the Amazon cloud. There's no iOS or Android support for now, other than the existing Android photo-sharing app for Cloud Drive.

Nor is Amazon playing the “recruit us new customers and get more storage” game. Instead it's charging $US10 a year to upgrade from the free 5GB tier to 20GB of cloudy space or $50 a year for 100GB.

At those price it's undercutting even the $US0.076 Amazon Web Services charges per gigabyte for reduced redundancy storage (20GB x $0.076 x 12 months = $18.24, 100GB x $91.20) in it's simple storage service (S3). It's also undercutting 100GB deals on Dropbox's ($99 a year or $9.99 a month) and Google's ($4.99 a month), but is level with Microsoft's SkyDrive pricing.

S3 is, of course, a more sophisticated beast than the basic storage service that is Cloud Drive, so would likely have higher costs.

But the prices on offer for the newly-expanded service still offer some insights into the cloud storage caper, because we know that Dropbox stores with AWS and we know – thanks to this Forbes profile of Dropbox founder Drew Houston, that only about four per cent of Dropbox customers pay for the service. We also know that S3's cheapest published rate is $0.037 per GB per month if one uses more than 5000 terabytes a month.

Let'a assume Dropbox has 5,000 terabytes and therefore pays $189,400 a month. We know Dropbox charges $9.99 a month for 100 GB.

So let's do some maths.

5000 terabytes is 5,120,000 gigabytes. At $0.037 a gigabyte a month, Dropbox would have a bill of $189,440 a month. At $9.99 a month for 100 gigabytes of data, Dropbox needs 18,963 paying customers to meet that bill. 18,963 times 100 gigabytes is 1,896,296, which leaves 3,223,704 gigabytes of space Dropbox can dole out to its non-paying users. That's not 96 per cent of the capacity it pays for, but given Dropbox's customers at all levels probably don't use all their capacity it's not hard to see how Dropbox could get mighty close to a profit even if it pays AWS' published price, which we can't imagine it does.

So is Amazon making a profit on Cloud Drive's paid plans? AWS' genesis as Amazon's private cloud means it is sensible to assume Cloud Drive runs on S3 or something an awful lot like it, charged back between business units at low, low, mi casa es su casa prices. That could mean AWS can operate cloud storage space rather more cheaply than its advertised rates and almost certainly more cheaply than it charges even colossal customers like Dropbox.

Even if we assume Cloud Drive is cross-subsidised to fill a role as an attractor for customers to buy digital content from Amazon it may be that Cloud Drive at $20GB/year for a tenner may be a money spinner for Amazon the retailer and AWS. We'll never know that for sure, unless AWS issues an unusually granular annual report. But the economics of the new service certainly hint at profits being possible in all sorts of ways in the storage cloud. ®

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