cloud computing – Akshat Rathi

Before Apple launched iCloud in 2011, Steve Jobs allegedly offered to buy Dropbox, a file-sharing service founded in 2007, for $800m. When Dropbox declined, Apple’s late boss disparaged it as a feature, not a company. Soon after, Dropbox raised $250m, putting its value at over $4 billion. Earlier in December Dropbox concluded a promotional campaign that, in just a few weeks, added 2m new users, bringing the total to over 100m, roughly double the number when Jobs made his comment. Consumers, it seems, can’t get enough of the feature.

Dropbox dominates online file-sharing. It boast three times as many users as its closest direct rival, YouSendIt. (Its dominance is even more pronounced when it comes to the volume of data stored.) It eats up 20% of all bandwidth consumed globally by browser-based file-sharing services, against 1% for YouSendIt. Dropbox users save more than 1 billion files every day.

Most of them use the free version of the service. The company makes money by charging for extra storage. Around 4% of users plump for the premium version, though the proportion is growing, according to Arash Ferdowsi, one of the Dropbox’s co-founders. The recent campaign, called Space Race, gave away free space to university students in return for getting their peers to sign up to the service. The hope is that when access to this extra storage runs out after two years, the students, by then freshly-minted professionals, will pay to keep using it.

Dropbox relies on individuals and small firms, for whom its rudimentary security features are good enough; bigger businesses with sensitive information prefer more secure services like Box.net. The advent of competitors in the nebulous form of iCloud, Google’s Drive and Microsoft’s Skydrive, which come pre-installed on their respective makers’ gadgets, does not seem to have dampened enthusiasm for Dropbox. Unlike iCloud, which boasted 190m users by October thanks to its deep integration with Apple’s mobile devices, the service is “platform neutral”—ie, works across different devices and operating systems—and allows easy file-sharing, both useful traits in an increasingly connected world where few people hew devoutly to a single device-maker.

Google and Microsoft clouds emulate Dropbox in these respects. But at a little over 10m users each, they do not yet benefit from from the incumbent’s powerful network effect. If you are sharing files with a dozen other people on Dropbox, a move to Google or Microsoft would require all 12 to move with you.

Dropbox is also striving to make itself the default choice for smartphone users. In 2011 it struck a deal with HTC, a Taiwanese phonemaker, to preinstall Dropbox on its Android devices. In return it gives HTC users 5GB of space for free. HTC has been struggling of late, but Mr Ferdowsi says that his company is in talks with other manufacturers, hoping for similar arrangements.

A bigger long-term worry is the plummeting price of digital storage. With its vast scale, Amazon has driven down costs substantially for the likes of Dropbox, which leases server space from the e-commerce giant. But Google Drive already offers 100GB for $5 a month, half what Dropbox charges for the same amount of storage. And Google can advertise its cloud across its myriad online offerings. Dropbox’s margins are only likely to get wispier in the future.

First published on economist.com.

Image credit: Dropbox

As more people use “cloud computing” services like webmail and do word-processing via a browser, software makers fret that today’s software piracy will migrate to the cloud too. The Business Software Alliance (BSA), a trade group, this month released a survey that emphasises that 30% of users in rich countries and 45% in poor ones have a “likelihood of sharing log-in credentials for paid services.” It is “a worrisome new avenue for software licence abuse,” says the BSA’s boss, Robert Holleyman.

Yet the closer one looks at the BSA’s study, the murkier such conclusions become.

Take the dramatic figures above. It is not quite so bad. The percentages come from a question in which people were asked if they had ever shared their log-in details for paid services. Some 15% of people in rich countries and 34% in poor countries said they had for personal use. For business use, it was 30% and 45% respectively. The larger figures amplify the BSA’s point, but they are not necessarily the most accurate.

Moreover the respondents were only those who had paid for cloud services, which was a fraction of users. Cloud services are generally based on a “freemium” model, whereby basic use costs nothing and a premium version is paid for. According to the BSA’s own data, only half of computer users tap cloud services, of which only one-third use it for business, of which two-thirds pay. Of the small subset that remain, the minority share log-ins.

This changes things considerably. If the BSA figures were adjusted for all this, the potential piracy figures could be as low as between 2% and 6% of users—as much as 20 times less than the group claims. (The BSA’s data is online here.)

Worse, the BSA and Ipsos Public Affairs, who conducted the survey, didn’t think to ask or examine whether sharing log-in details violated the terms of service. It may very well be the contrary: that the service had communal uses as a feature. Mr Holleyman bends over backwards to acknowledge as much on a blog post. Yet the overall impression that the BSA gives is that cloud users are poised to rob firms of their rightful revenue.

There are other anomalies. The BSA only considered PC use, when many people use cloud services over tablets and mobile phones, especially in poor places. And the survey, of 14,702 people in 33 countries, presumes to speak with confidence about the “developing” world but not a single African country is represented—an odd omission, since it is a fast growing market.

The annual BSA piracy study released this year in May estimated losses to the PC software industry in 2011 of $63 billion. That princely sum would make software piracy the 66th largest economy in the world, worth more than Syria and Croatia. The BSA reaches that amount by multiplying the estimated number of computers containing pirated software with the retail price of the software.

It is a specious way of calculating piracy (as we explored in an article in 2005 entitled “BSA or just BS?”). Many people would not buy the product at the expensive retail price. That’s why they steal it, after all. Still, the BSA’s dubious figures influence public policy. Mr Holleyman was invited to testify at a congressional hearing on July 25th on cloud computing, where his prepared remarks specifically cited “credential sharing” as a piracy challenge.

Be it in the cloud or back down on Earth, software piracy is theft and is wrong. The crime should be prosecuted and technically prevented as much as possible. But the way we think about the extent of the problem must be grounded in reality. Anything less is wrong too.

Written with Kenn Cukier. Also published on economist.com.

Image from here.