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YahooMail, Storage, and the Battle For Personal Data

Yahoo! announced today that it was effectively ending the long running game of e-mail storage one-up-manship between itself, Google and Microsoft by offering unlimited e-mail storage for free.  Not to be outdone, Google and Microsoft can be expected to follow suit shortly at which point Internet e-mail junkies will be in a universal state of infinite e-mail storage bliss.  This move by Yahoo highlights two key trends, one of which is obvious, the other not so obvious and represents just the tip of the iceberg in what is likely to be an avalanche of free storage offered by major Internet sites in the coming months.

Cheap Storage = Free Storage
The obvious trend highlighted by Yahoo's move is that storage is damn cheap and getting cheaper.  As I outlined in a recent piece on storage trends, in the last 15 years storage capacities have grown by a factor of almost 6,000 X while prices have declined by a facto of over 13,000X.  Yahoo's move to offer unlimited e-mail storage is basically an acknowledgement that storage costs have declined to the point where the incremental cost of providing more storage is more than offset by the incremental revenue opportunity. A similar game of free storage one-up-manship is also currently playing out in the online storage/backup space with sites such as AOL's XDrive, OneBox, and Streamload announcing ever higher levels of free storage (25 gigabytes is the current frontier).

Storage and the Webtop
However, beyond dirt cheap storage Yahoo's move highlights another trend which is just starting to play out.  This trend is the migration of desktop data to the online storage cloud and the fight between Google, Yahoo, and Microsoft to control this data because he who controls the data will most likely control the "webtop" and the suite of web-based applications that access that data.

What is the "webtop"?, well the webtop is basically a web-centric version of the desktop OS.  Microsoft's $270BN market valuation attests to the value of the desktop OS (and its suite of integrated applications) and there is a growing belief in the tech world that much of that $270BN may be up for grabs again as end-users make the platform transition from desktops to webtops.  There is also a realization that in the standards-based world of the web, the only real sustainable advantage is control of unique customer data because without that data one webtop OS is basically indistinguishable from the next.

To put this another way, if you think about what really makes your PC or laptop "your" computer it's not the desktop operating system, but all the unique data and applications you have installed on top of it.  If you take away that data all you have left is a terminal that most people could care less about.   On the web, there is no need to install applications because all applications are universally accessible.  That leaves personal data as the only unique asset that defines one webtop from another.

With this as the context, Yahoo's offer of unlimited storage starts to look a bit more strategic than just riding the curve of cheap storage, in that what it is really designed to do is to protect and extend their franchise of hosting what is arguably the most important personal data that most people have today: their e-mails.  Controlling this data makes it much more likely that Yahoo will not only be able to keep a large percentage of their users using not just YahooMail! but all of their other services that feed off of user data.  By building hooks for their various apps into users personal data, Yahoo will make using it's own applications the path of least Resistance.  For example: Want to share a photo you just got in the YahooMail!, click on the "Share via Flickr" button and you are all set.

The Tip of the Iceberg
So where do these two trends lead us?  A lot more free storage from the big three is one sure bet.  In fact, I would expect that by the end of 2008, Google, Microsoft, and Yahoo will basically offer unlimited storage for everything: e-mail, pictures, music, application data, you name it, for free.  They will do this not just because storage is cheap, but because they realize that by giving away personal data storage they have a much better shot of controlling the webtop and its constellation of tightly integrated web applications.

Let The Battle Begin
The battle for the webtop and the platform transition spoils that likely accompany it is far from over.  Yahoo and Google must still address serious gaps in virtualization, offline capability and application integration.  However, one of the most, if not the most important early battles in that war, the battle over the control of personal data, is now well and truly underway.

March 27, 2007 in Internet | Permalink


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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.