Last week, market research firm Gartner let it slip that Iron Mountain was shuttering its cloud storage service, and reliable sources are telling me that cloud storage gateway startup Cirtas has let its marketing and sales staffs go so the company can concentrate on improving the product. Is this a trend? Is the cloud falling? Will we be left choosing all our IT products from the five families ... oops ... remaining suppliers: IBM, HP, Dell, Oracle and Cisco?
Iron Mountain's decision to drop its low value-add, low markup cloud storage offering, while unexpected, made a lot of sense to me. Iron Mountain never seemed to have its heart in it and never made the offering attractive. While Amazon and Nirvanix offered options to store multiple copies in multiple data centers and advertised its prices, Iron Mountain apparently felt its trusted name would be enough and that corporate users would ignore the single data center architecture.
Cloud storage is a game of scale. Large providers can use lower-cost but failure-prone components, and make up for it in networked fault tolerance, amortizing the development costs over many petabytes to offer attractive pricing. If you can't scale, or you can't sell enough storage to scale, you can't make money.
My friend Greg Knieriemen was hard on Iron Mountain for leaving the cloud storage market, arguing that any exit was premature and would erode the trust customers must have to use cloud storage. While there's truth to that, I think Iron Mountain made as gracious an exit as anyone could. They stopped sales to new customers on April 1, and will discontinue the service by 2013. Compare that with Mozy's announcement that it was ending unlimited storage and boosting prices effective immediately. A user with a petabyte on Mozy could take a month to frantically copy it somewhere else, while an Iron Mountain user has a year or more to find a new solution.
Iron Mountain's management is also facing attacks from a hedge fund manager who wants the company to give up on the low-margin digital world entirely and reorganize the highly profitable business of managing boxes of paper records and backup tapes by the warehouse-full into a REIT (Real Estate Investment Trust), which would be more favorable tax-wise.