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Breaking Down the Cost of Traditional Centralized Cloud Storage

Oct 12, 2021
Breaking Down the Cost of Traditional Centralized Cloud Storage

Amazon, Google, Microsoft, iCloud and DropBox — those are the names of the major players in control of the web2 centralized cloud storage industry today. With the exception of DropBox, none of these tech conglomerates started out selling cloud storage. Each of the businesses had both the capital and the foresight to understand not only the value of data but the value of keeping it in cloud storage on behalf of businesses and individuals.

That’s why each of the above companies earns a significant amount of their annual revenue from their centralized cloud storage businesses today, with Amazon being the most dominant player in the space by far.

How Much Money is in Web2 Cloud Storage

One research study estimates that 49% of data storage will be in the cloud by 2025. The same study suggests that the global datasphere will increase in size from 33 million terabytes (TB) in 2018 to over 175 million TB by 2025. Just to put into perspective how much 175 million TB really is, it would take 1.8 billion years to download that amount of data with a connection speed of 25 MB per second.

More important than the volume of data, however, is the true value of that data. Not only are more businesses and individuals storing data in the cloud, but they are also not deleting their old data, and expect all of it to be secured equally.

That explains how a company like Amazon made over $45 billion in revenue last year just from its centralized cloud storage service alone. The best part for Amazon is that many of the biggest customers of Amazon Web Services are entrenched, and the probability of them leaving the Amazon ecosystem is slim. They include Netflix, Disney, and The European Space Agency to name a few.

Amazon’s cloud storage business is so valuable to the company that when Jeff Bezos announced he was stepping down last year, the man responsible for building AWS into the giant it is today was named as his replacement: Andy Jassy.

Major Revenue Growth Means Major Capital and Overhead Expenses

Web2 centralized cloud storage services are not cheap to launch or grow. After all, offering fast and secure centralized storage to users means building huge physical data centers that can house the servers, networking, and cooling equipment necessary to accommodate the storage needs of some of the world’s largest companies.

It’s estimated that Amazon’s monthly costs for running a data center break down as follows:

  • Nearly 60% of the monthly costs go just to the hardware expense of buying servers.
  • 18% of monthly expenses go towards power distribution and the cooling of the equipment.
  • 13% of the monthly cost is just for electricity.
  • Networking equipment accounts for 8% of the monthly cost.
  • The other 4% of expenses are related to other infrastructure.

While it’s estimated that cloud storage services can save businesses between 10% and 20% of their infrastructure costs, reliance on a centralized service has its financial drawbacks. That’s not even considering the expense required to continue scaling these businesses at a modern pace. Amazon spent over $116 million to buy 90 acres of land in northern Virginia in 2019 and committed to building three new data centers on the property that are going to cost the company more than $200 million to build.

The Cost of Web2 Centralized Data Storage to Developers, Businesses, and Individuals

Egress bandwidth refers to the minimum and maximum upload speed available on a wide area network. If you’re not benefiting from edge computing, which is computing done at or near a data center or source for the sake of lowering transmission costs, the price of transferring data could be out of reach for startups, developers, and individuals.

One Twitter user points out that a local bandwidth provider can provide 1 GB per second of egress bandwidth at a cost of $400 per month. He says accessing the same amount of bandwidth via a large cloud provider like Amazon would cost $21,000 per month.

It’s estimated that Amazon, Google Cloud Perform, and Microsoft Azure waste 35% of the money spent on cloud storage due to inefficiencies in meeting customer needs and delivering storage. Wasting that much capital may simply be the cost of business for large, established companies. However, a start-up perhaps trying to launch a new app and accommodate millions of users could see their business collapse if they can’t afford to foot the bills necessary to transfer and store data.

Amazon has more than 70,000 different price points for customers based on their individual needs, discounts, or eligible value add services. Difficulty in standardizing pricing, delivery, or storage often means developers and small businesses get crushed by the very services they depend on when their fees skyrocket.

Filecoin Solves the Problems Web2 Centralized Storage Cannot

Filecoin uses storage space provided by the crowd in order to offer users and businesses cloud storage services in a decentralized format. Decentralization means no need to spend capital building out huge data centers that can ultimately burn out due to environmental elements, power demands, or sheer cost.

What’s more, scaling data storage costs don’t have to scale in lockstep with the volume of data being transferred at any given moment or the amount of data being stored in perpetuity. This is in contrast to centralized storage, which has more linear pressures of scale.

Allowing Users to Monetize, Democratize, and Utilize Storage

Thanks to decentralization, the costs of storing and transferring data can actually go down as time goes on because the network can choose the cheapest route for transferring data. Ultimately, what all this means is that businesses, developers, and individual users alike can store their data at a fraction of the cost of using a major web2 centralized storage solution.

All of the above benefits are evident within a web3 decentralized solution like Filecoin, and additionally, storage providers willing to offer space on their hard drives can earn revenue for themselves just for being a participant in the Filecoin ecosystem.

Publicly- traded companies like Amazon, Microsoft, Google, and DropBox certainly have a vested interest in increasing the value of their stock prices and the shareholder value that is often tied to it. However, that doesn’t mean they are interested in decentralizing every facet of their business models in order to benefit the masses and lower the cost of storing, transmitting, and securing data.

Growing Web3 Storage

Today’s cloud storage ecosystem has provided tremendous growth and scale for the world’s businesses, and has allowed individuals to store their personal information more confidently. With such rampant growth over the last decade, however, the cracks of centralized storage are beginning to show.

High physical capital demands trickle down to business and individual users alike in the form of high costs, unstandardized pricing, and security risks. For decentralized storage, Filecoin is providing an alternative option, charting out its own path of rampant growth without the same risks of high cost and poor user experience.