The whole emergence of cloud computing is a very interesting phenomenon. It is most definitely driven by consumers demanding more and more mobile solutions but it is also driven by something else…money. The thing that’s been interesting is that much of the cloud computing world has been rapidly dropping prices. Consequently, this is hurting their revenue…at least in the short-term. So, how does this all work and where is it going…good questions. I don’t know that I’m smart enough to answer every possible question but here are a few of my thoughts and observations.

The first part of the model is oversubscription. It’s done everywhere from telephone and Internet providers to airlines and much more. Cloud providers are banking on varying percentages of their customers not using all of the service they’re subscribing to. For example, if a provider brings in 1,000 customers and offers them each 1 Terabyte of storage, the provider doesn’t necessarily need to have 1,000 Terabytes of storage to serve those clients. They need, maybe, 250 Terabytes to serve that customer group.

The second and, I believe, bigger part is a land grab.

One dirty little secret of cloud computing is that it is, for the most part, VERY hard to get away from a cloud provider. Solutions like Office 365 are standardized enough that they are relatively easy to move away from but more advanced solutions, like Amazon Web Services, are VERY difficult to move away from. Some services, like SalesForce and QuickBooks Online are virtually impossible to fully leave without losing at least some of your data. IF you can get away from the provider, it will usually be at a very high cost both in money and potential data you can’t take with you. Cloud providers know how difficult it is to move away from them and are banking on this. Once they have you, they can increase their rates and there is little you can do. We have been seeing this happen in a number of the services out there.

Even if the cloud provider isn’t planning on cranking up your rates, most of the pricing models that are presently out there are not sustainable, unless they are viewed as a loss leader. If that is the case, expect providers to either reduce the free/low cost services or stop developing those services and charge you for the newer solutions. Over the next few years, I believe the “charges” for those solutions will be quite a bit higher than we have seen in the past.

Don’t get me wrong. This isn’t to say that cloud computing is horrible, it is just to say that we need to have an accurate understanding of what it is. In its proper context, cloud computing can be cost effective and very scalable. Taken out of its proper context, you are taking a massive gamble with your data, the future of cloud computing and the future of your business…those are things I’m VERY hesitant to gamble with.