Sunday, June 24, 2012

Minimum price for a Storage SaaS subscription?

Storage SaaS providers (SSaaS) are companies which sell end users a product that requires lots of storage. Examples are backup (Mozy) and file sync (DropBox).    When SSaaS get to a billion customers, their primary expense will be that of storage and that's what I focus on in this post.

I suspect all SSaaS buy their storage from one of the big 3 utility computing sources (Microsoft, Amazon, Google), which all have identical pricing. As of June '12 - The utility computing price for storage is 1.25$/GB/yr for low volume and 0.6$/GB/yr for high volume.

This means, that a SSaaS providers price must exceed the price of 1.25$/GB/yr to be profitable even with a smaller customer base.   Lets check the pricing of some services:

  • DropBox - 100$/50GB = 2$/GB
  • Mozy - 60$/50GB = 1.2$GB 

Dropbox is profitable on storage cost out of the gate, but what about Mozy?  At 1.2$/GB they would be taking a loss until they can get enough customers to qualify for storage volume discount pricing. 

I have no insider information but I can deduce a few factors come into play to make SSaaS pricing model calculations:

  1. Customers over provision:  Few customers have exactly 50GB, I suspect most customer are vastly over provisioned.
  2. Storage optimization:  By being an SSaaS you can apply compression over your entire customer base. As a trivial example assume 200 customers own the same movie, you can store a single copy of it and save your self gigabytes in cost.
  3. Reduced storage cost over time:  Over time your company will get larger data volume discounts, and the general price of storage will fall (although odds are your competitors price will drop as well).

There are obvious things my price model doesn't consider, and before setting a SSaaS pricing strategy you should probably evaluate them :) 

  1. Free accounts Ratios- Most SSaaS provide free storage on the order of 5-20GB - that's 6-24$ per year, with a lot of free accounts that significantly increases your cost.
  2. Every cost not including storage :)

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