Virtualization and Cloud executives share their predictions for 2015.  Read them in this VMblog.com series exclusive.

Contributed article by Jim Sherhart, Vice President, Connected Data

2015: The Financially Unsound Cloud Storage Market Won’t Last

In 2014 the cloud grew into a ubiquitous presence, distrusted by celebrities, joked about in pop culture, a storage closet for consumers, and now enterprise technology companies are making this the new battleground to gain market share.

However, enterprise-based IT organizations know the public storage model stumbles from a cost, privacy and security standpoint. Meanwhile, they need to provide services that are convenient and crucial to their business.  While hardware still reigns supreme in the enterprise storage market, the cloud is poised to increase its market share. Studies reveal 70 percent of enterprises expressed interest in running cloud storage, from their own datacenter. For any hi-tech vendor paying attention, owning the enterprise cloud storage market means long-term market share growth and profitable financial benefits.

In 2015, enterprise IT concerns over control and privacy will peak, this will further unveil the unstable financial and business model currently offered by public cloud storage providers. The following points illustrate the disruption faced by this sector in 2015: 

A Shaky Financial Model

Despite employees enjoying the experience of public cloud services like Dropbox, companies like these are not building a financial model to stand the test of time. In addition to the preferential tendencies of IT organizations wanting to purchase and deploy hardware to keep storage costs down, hi-tech vendors are struggling. The main issue? Figuring out how to make a profit delivering public cloud storage services as they try to pinpoint a stable model for generating revenue.

One prime example is Box. In 2014 the company lost $168M on $124M in revenue, demonstrating the extent to which employees are taking advantage of the Box experience is not equal to the funds coming in. Also, Bitcasa dialed back its offering of unlimited cloud storage to non-existent to weed out the organizations abusing the system by creating individual storage accounts. Instead of preventing employees from using their Dropbox or Box accounts to store work files, businesses will demand an alternative that enables them to embrace cloud storage at a more cost-effective level, avoiding monthly subscription fees and service contracts.

Private Cloud Storage Improves Privacy

Among business and IT leaders, many are looking at the private cloud for its safety and ease. An IDG Connect survey reported the following results: 

• 50 percent of business and technology decision-makers prefer private clouds dedicated to individual companies or departments, compared to hybrid or public alternatives.
• 60 percent of respondents said that providing adequate security remains the biggest challenge for delivering cloud based services.
• 50 percent of the executives said they preferred a private cloud to fulfill key requirements like ease of use and customer demands.

It's clear that security is a sticking point for business organizations seeking to leverage the conveniences of the cloud. Experts noted that the disadvantages of the public cloud include data traveling over the open Internet to the cloud provider, a dependence on the responsiveness of the cloud vendor, and relying on the vendor to stick to the original terms of service.

Technology Business Research estimates the private cloud market will grow from $41B in 2014 to $69B in 2018.  Third-party delivered private cloud solutions (as opposed to self-built), dominate at 70 percent with expectations to increase their share of the global private market due to demand for hybrid cloud environments, companies prioritizing security concerns for clients, and the ever growing complexity of the cloud. Plus, the cost advantages of using some form of the private cloud are undeniable for growing companies. Moz, a large SEO consulting company, started out with the public cloud, and later moved to a hybrid environment, claiming to have saved $3.4M by adopting a private solution.

In the year ahead, CIO's and IT administrators are expected to take the lead, pushed by their business leaders to meet employees' demands for the file sharing services of the public cloud. This push though will lead the enterprise toward solutions in the growing private cloud market where they are looking for the full package that offers advantages including a financially viable outlook, more control in the data warehouse, and minimized security issues.

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