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Until last week, Barracuda Networks’ backup customers were paying $50 per month for 50 gigabytes of storage. The company doubled the capacity of its basic backup service, while effectively cutting the charges in half.

The pricing and capacity change introduced by Barracuda will likely have no immediate impact on the rest of the storage market. However, there are growing signs of price instability and increasingly competitive pressure in cloud storage.

Earlier this year, document storage service Iron Mountain pulled out of the commercial cloud storage market, citing poor sales and high costs. In May, Iron Mountain sold its archiving, e-discover and online backup assets to Autonomy for $380 million.

Cirtas Systems, a hot hybrid cloud storage provider, imploded earlier this year just months after coming out of stealth mode. Some observers speculated that Cirtas was tripped up by a poor product and high prices. It’s reorganizing, but its fate is unknown after losing much of its workforce and at least one of its investors.

Symform, the distributed cloud storage service provider, came out with flat-rate storage fees substantially underpriced compared to market. The guarantee made by Symform is prices will be at least 50 percent less than competitors. More recently, Symform introduced a freemium offering of 100 gigabytes of storage; the program is designed to expose partners and customers to its services.

Today, the cost of storage can range from zero to $1,200 per month for a relatively trivial amount of space. And the services vary in their features and functionality. Some, like Barracuda, are hybrid models in which the cloud is used for bursting peak storage demands or replication. Others are more like synchronization services, such as Box.net and Dropbox.

The players in the cloud storage space are equally diverse. Barracuda is primarily known as a security appliance company. Trend Micro, another security vendor, recently launched a file backup and synchronization service called Safe Sync. Amazon, Google and Microsoft all have cloud storage offerings for businesses and consumers. In short, there’s no shortage of storage supply.

So here’s where it gets tricky: pricing.

Carbonite – a backup and synchronization service that caters to SMBs and consumers – offers unlimited small business backup for $229 a year. Box.net, which offers basically the same service, charges $15 per month per user for up to 500 gigabytes of online storage. Box.net has a three-user minimum, so the effective annual price is $540.

Each of these cloud storage vendors is looking to the channel to push their products, accelerate revenue and capture market share. The problem many are facing is twofold: The customers don’t know they need backup and don’t necessarily understand enough about the cloud to trust it, and there is no consistent pricing. What makes one service better than another when the price ranges from free to $1,200?

These vendors face a real problem, too, and that’s cost. Like all cloud services, the cost of operations is front-loaded, which means the vendor must build the infrastructure before it signs the first customer. With revenues amortized, it takes months – if not years – for cloud storage vendors to recoup their initial investment while still covering operating costs. This is why many cloud storage prices seem very high, and it’s the trap the Iron Mountain fell into.

Market analysts and vendors are correct: Cloud storage is the future. The cloud provides the scalability and distributed costs that can meet businesses’ ever-increasing data storage needs without incurring fixed costs. The trouble is that someone has to absorb those costs, and that’s the service provider. The abundance of suppliers may not lead to a price war, but it will keep pricing uneven and unstable. This will result in greater customer scrutiny and longer sales cycles.

Eventually, the cloud storage market will mature. But it looks like the maturation date is still a long ways off.

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Lawrence M. Walsh is CEO and president of The 2112 Group, a technology business advisory service that specializes in optimizing indirect channels and partner relationships. He’s also the executive director of the Channel Vanguard Council. He is the former publisher of Channel Insider and editor of VARBusiness Magazine. You can reach him at lmwalsh@the2112group.com.

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Larry Walsh:@lmwalsh2112| Channelnomics: @channelnomics

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