The Samsung Galaxy smartphone that was recently introduced includes two years of 50G of free Dropbox storage. The bundling of Dropbox on this latest gen smartphone represents how cloud service providers are engaged in a heated market share battle. The Dropbox move indicates that independent cloud service providers believe that their best bet to compete against deep-pocketed cloud storage services, such as Google Drive, Microsoft SkyDrive and Apple iCloud, that are using their cloud storage services as a free loss leader to make money another way, is to pay companies to bundle their service and provide large amounts of storage to entice people to use their service versus another.

Is History Repeating?

This is reminiscent of how companies paid operators for placement in their mobile web walled gardens a few years ago. Although some short-term money was made by operators, this was a classic case of operators winning a battle but losing the war. In that case, operator walled gardens proved futile as app stores did an end run around them, tilting the industry fortunes toward Apple and Google.

If operators and device makers follow the same short-term mentality of allowing cloud services companies to dictate their cloud storage strategy, this story will have a similar ending – providers will make some short-term money but will lose the bigger market to these other companies.

The good news for mobile providers is that there is still time to heed the lessons of the past, and that history does not need to repeat itself, but only if they act in their long-term interests rather than follow a path of least resistance.

The market for cloud services is changing daily and it is difficult to keep tabs on what is happening. Here is some business context as to what is going in the market and is essential for mobile providers to know.

The aggressive grab for market share in the cloud storage services market is primarily the result of uni-brand file-centric cloud storage services being a commodity and largely indistinguishable by end users.  Therefore, the primary way that these services can compete in the short term is on storage and price. Hence, you will continue to see arrangements such as Dropbox and Samsung in the short-term.

The critical message for mobile providers is: DON'T BE FOOLED! These actions are a thinly veiled effort to buy market share by these companies. But make no mistake; this market share grab comes directly at your expense as a mobile provider.

Every time a mobile provider promotes one of these other cloud storage services, they are just digging their own grave, faster and deeper. This is because they are making their users less reliant on themselves and more dependent on another company's services.

End Game for Cloud Storage Services

The major strategic question for mobile providers is whether one or two cloud storage services will ultimately dominate in the market, no matter what they do. For example, are these services just going to “duke it out” and there will be a “bloodbath” such that whoever offers the most storage for free for the longest period of time, wins? If this is the case, one might believe that the most prudent course of action is to sit on the sidelines and wait for the gladiators to fight to the finish.

Unfortunately, this passive approach fundamentally undermines a provider's value and position, because as one or two of these services prevails (similar to how Gmail is now much more popular than other webmail), users will store the vast majority of their mobile content in those clouds. Their loyalty to any mobile provider will be taken down several more notches. As some investors say, this would be “game over.”

There is a winning alternative, however, which is that mobile providers can fight back by offering their own personal cloud service that is better than all of these other services – but how?

- They can use a white-label personal cloud solution to promote their brand. Much more than just building brand equity, this enables providers to house their customers' mobile data and content, which makes those users more loyal to them than someone else.

- Mobile providers can beat other cloud storage services at their own game. They can also offer a free service, but then use it to increase customer retention and to promote their own services and products, not those of other companies.

- Providers should view a personal cloud service as the foundation to generate both direct and indirect revenue in several ways, including lower acquisition costs, churn reduction and selling premium content (music & videos), premium services (full backup), mobile advertising and business-class services.

Hand-in-hand with this is the key question: How can a mobile provider's personal cloud solution be better than the current crop of services? There are several ways, including:

- It supports all major smartphones, tablets and computers with a single cloud, which is much more appealing and convenient for users than requiring separate clouds for their multiple devices.

- It supports more than just files, but also rich media and PIM data (e.g. contact and calendars), in a mobile-centric way, with support for other types of structured data as they emerge.

- It can be integrated with their billing and customer service systems for a seamless user experience.

- It offers truly private clouds for families and SMBs/enterprises, where their data is not mined for advertising purposes, plus it conforms to in-country specific privacy requirements.

There is a massive battle going on for dominance of the cloud storage market, to see who can capture the most user mobile data and content. The good news for mobile providers is that they have the upper hand, but only if they actively launch their own branded cloud storage service quickly, before history repeats itself.

Hal Steger is vice president of Worldwide Marketing at Funambol.