The sky’s the limit for cloud consumption

  • Find out why cloud services offer a huge marketing opportunity for designers trying to reach new customers and the next generation on a mass scale, click here
  • “The web is being rebuilt around people – shifting from the information web to the social web” says Facebook UK commercial director, read more here
  • For expert viewpoints on why cloud consumption is on the rise in so many different sectors, click here
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Modern life is all about convenience. The rise of cloud technologies, which allow digital media to be stored online rather than on a single computer or device, has been rapid. But while most people are familiar with the concept of storing photos on Facebook or saving documents to an online account, the cloud is spreading and consumers are applying the virtual ownership ethos to all areas of their lives.

This new trend of ’cloud consumption’ is not restricted to online industries. People are also exhibiting the same behaviour towards high-value offline purchases. They are seeking more flexibility and less responsibility, with customers in the property, car and even fashion sectors experimenting with options that free them from physical ownership. The cloud consumer is demonstrating a fundamental shift in purchasing patterns, meaning that brands in every area of business must consider how they can appeal to these customers.

In the technology sector, the cloud consumer has existed for some time and numerous services are available to satisfy their needs. Krister Nilsson, chief executive of technology company Xcerion, says that people now have so many devices they need a virtual hub to store all their media and information. Xcerion’s cloud-based operating system CloudMe provides online data storage and a desktop accessed through a web browser. A cloud operating system allows users to access their files whenever and wherever they can connect to the internet, through each of the many devices they are now likely to own, including smartphones, PDAs, tablets, laptops and desktop PCs.

“The flexibility to be free from devices or places is a primary reason for choosing to store all data in the cloud,” explains Nilsson.

As well as flexibility, another reason for cloud consumption is freedom from responsibility. In the case of computing, should a hard drive be wiped or cease to function, an individual might lose a wealth of important data. Keeping it in the cloud removes this risk from the consumer. Security against theft is also likely to be higher in the cloud than what many businesses or private users employ themselves. “Many users carry a lot of data on their laptops, and are using unencrypted email services that do not offer any security,” says Nilsson.

Many marketers will recognise the benefits of giving consumers more flexibility and less responsibility. The same principles behind the growth of cloud computing also transfer to more traditional consumer products.

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In fashion retail, for example, services such as WishWantWear and Girl Meets Dress rent out designer clothes that customers wear once, then return (see The Closet in the Cloud, below).

The trend is a step beyond the established model of hiring costumes or evening wear for a special occasion. Instead, consumers have access to a virtual designer wardrobe when they want it, but without the anxiety of damaging the garments or wearing them too often. Customers are also likely to try a greater number of outfits than they own themselves, and in more daring designs, because the cost of doing so is lower than buying. There is also no need to worry about choosing something that can be worn again and again. According to WishWantWear co-founder Suruchi Bhargava, brands have the opportunity to reach an enthusiastic new audience with elaborate signature clothes that many consumers would normally not be brave enough to buy on the high street. Bhargava notes: “The kind of dresses that we buy are the more striking statement pieces, and not the safe pieces that someone would go to Selfridges and buy anyway.”

This type of service signals a new and specific style of consumption, where individuals give up physical control or ownership in exchange for more choice and passing on risk. The benefit for the brand is in spreading the cost of providing the service among many customers. Bhargava explains: “Collaborative consumption is very recent and is progressing from one industry to another. We saw it happen with movies and cars, it’s time it started happening with fashion.”

As Bhargava notes, services such as Streetcar make communal cars available at roadside locations for an annual subscription fee plus a pay-as-you-go rate. It targets consumers who want to have the option to use a car occasionally, but do not want to bear the risks and responsibilities of running costs, loan repayments or loss of resale value.

The Streetcar service caters to occasional drivers
The Streetcar service caters to occasional drivers

According to its co-founder Brett Akker: “People join Streetcar where they believe they can save significant amounts of money against either car ownership or other forms of car rental. And also where it is as convenient as owning a car but without the hassle and cost.”

Lifestyle is clearly a contributing factor in a consumer’s likelihood of choosing such a service over private car ownership. The market for Streetcar is primarily city dwellers who would travel to work by other means and run most of their errands without driving, but who might want a car for weekend breaks or bigger shopping trips.

“The majority of our members would use public transport, walk or cycle for most trips,” says Akker. He adds that those who join the scheme as a replacement for vehicle ownership travel around 70% less by car as a result.

Even those drivers that have a need for more regular use of a car still look for the benefits of cloud consumption. More buyers are now choosing to make purchases using loans where they have the option to hand back, upgrade or keep the car at the end of the contract. According to Toyota Financial Services managing director Doug Gillies, there has been a trend of significant growth in this type of finance option, known as a personal contract purchase (PCP), in the past 18 months.

In 2009, 26% of Toyota retail vehicle purchases in the UK were made this way. In 2010, the figure was 46%, and in 2011 it is tracking at 54% year-to-date. “It is becoming the way to buy a car as far as Toyota is concerned, and I think that is replicated in the industry,” says Gillies.

These contracts are typical of cloud consumption. The buyer makes an initial deposit followed by monthly instalments, and pays the largest portion of the purchase price only if the car is kept following the loan period. There is the flexibility to trade in the car at the end and there is no risk of losing resale value because this is agreed at the outset.

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PCPs are affecting consumer behaviour at a basic level, claims Gillies. “I think it is a fundamental change in the industry,” he says. “This type of product enables the customer to change the car more frequently. It also means the customer has no need to worry about depreciation because the future value is guaranteed.”

The evidence from Toyota suggests that car manufacturers could be taking greater advantage of these finance products in their marketing, given the substantial growth seen and the attractive interest rates currently available. They also appear to encourage brand loyalty, as nearly half of all Toyota’s PCP customers go on to upgrade their contracts with a replacement Toyota under a similar deal within 30 months, according to Gillies.

Changing lifestyles and economic conditions have also created a long-term trend towards rental in the property market. Here, too, people are operating with a cloud consumption mindset. To meet this demand, more property companies are moving into the business of letting, buying up available rental stock to meet demand.

According to Miles Shipside, commercial director of property website Rightmove: “There is a growing number of people who will not be able to get mortgages for a good number of years. Renting has become more socially acceptable, which is also a fundamental shift.”

Like other forms of cloud consumption, there is more flexibility and less responsibility in renting a property rather than buying one, although this may be because people want flexible living arrangements due to worries over job security. Another significant reason for consumers choosing not to buy a house is that home ownership has become more risky as prices have fluctuated in recent years. Shipside says this actually goes against the grain of the UK consumer’s general attitude towards property, claiming that by nature “the Englishman still wants to buy his own castle”. His observation represents the biggest trade-off concerning cloud consumption in any industry – a loss of control for the consumer. Relinquishing physical ownership is only likely to be appealing to people as long as the benefits are consistently realised. The rental market is not alone in demonstrating that some aspects of cloud consumerism are unavoidable rather than strictly desirable. In the media industry, for example, the transition into the cloud has been a necessity, motivated more by protecting revenues than by consumer convenience.

Renting offers householders more flexibility
Renting offers householders more flexibility

With online piracy having a detrimental effect on sales, encouraging people to stream music, films and TV programmes through pay-to-play services is one way of preventing files from being shared illegally. Services such as Spotify, Last.fm and Pandora have for several years allowed listeners to stream music online, each with playing restrictions and different subscription offerings. Media companies are attempting to turn the situation around to deal with digital piracy by offering cloud storage in which consumers can keep their entire media libraries, playing and syncing them to their own devices from there.

In March, Amazon launched its Cloud Player in the US, followed closely by Google’s Music Beta. Apple released its version, iCloud, on 6 June after completing negotiations over licensing deals with the major record labels. Neither Google nor Amazon secured these before releasing their products, and legal battles about licensing rights are likely to follow.

But not everyone is convinced that adopting cloud consumption as a method to force consumers to pay for what they currently enjoy free – albeit illegally – will work. Consumers are likely to resent the imposition of cost, even if it does increase choice and flexibility or remove the risks and responsibilities of physical storage.

Founder of legitimate peer-to-peer file sharing site Vodo.net Jamie King argues that at the current rate of technological development, broadband will eventually be so fast and physical data storage so cheap that the more practical option for consumers will be to keep and share their media libraries among themselves.

“By 2028 every piece of content ever made will fit on a $5 piece of technology,” King said at an event hosted by agency Fallon in May. “Either you will have a copy of everything or someone near you will, and it will take so little time to transmit that it will be nonsensical to ask, ’Do you have this album?’”

King warns that companies trying to take advantage of cloud consumption for the wrong reasons could end up putting artificial barriers around the files people want. In this case, he says, consumers will rebel. “If you build a swimming pool in the sea, eventually people will start to wonder what is outside,” he observes.

In the long term, brands will need to make sure that any transition to cloud consumption is made purely for the good of the consumer. Any companies seeking to join the trend simply to solve business issues are misunderstanding it.

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The closet in the cloud

Cloud consumption has reached the fashion world. A new business model is seeing firms pop up to offer vintage and designer clothes rental, creating virtual wardrobes for shoppers. After wearing items, they send them back leaving the companies to take care of maintenance and cleaning with optional insurance against damage on the night.

The newest name on the scene is WishWantWear, currently running a limited online pilot service due for full launch this autumn. It follows in the footstep of pop singer Lily Allen’s London-based boutique Lucy in Disguise, which launched last September and rents out items from its store. Meanwhile, Girl Meets Dress, a website launched by Anna Bance in 2008, has been offering the cloud consumption service for several years.

Bance says consumers’ attitudes towards buying clothing have changed in recent times, driving them to seek more variety of outfits. Photos of what someone wore at any given party are likely to be online within hours.

“The proliferation of social media has a lot to do with an increasing social pressure, which has heightened the growing desire for people to make a statement with their fashion and for a woman’s inherent desire not to wear the same dress twice,” she explains.

With garments and accessories offered at up to one-third of the retail price, such cloud fashion seeks to attract repeat business from customers whenever an occasion calls for something slightly more special. For many customers, it stops them both wasting money and having to store racks of unused dresses.

WishWantWear co-founder Suruchi Bhargava adds: “We encourage women to think of it as an extension of their wardrobe.”

It is not just the person on the street seeking these services. WishWantWear recently partnered with the Bafta TV Awards, for example, dressing attendees in designer gowns. According to Bance, aside from the benefits of celebrity exposure, there are significant marketing opportunities available to designer brands in letting consumers pick their clothes from the cloud.

“Women will typically only have tried a few high-end designer brands in their lifetime, if any. With rental, designer labels get to be introduced to potential customers on a regular basis – 98% of our customers try a new brand they have never worn previously in their life. That is a huge marketing opportunity for designers trying to reach new customers and the next generation on a mass scale.”

WishWantWear’s Bhargava claims there is also an appeal for seasoned wearers of designer couture. “We offer consumers who are already able to afford to buy a few dresses a year the chance to be more experimental and have a bit of fun with fashion, without having the price at the back of their minds.”

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How to spot a cloud consumer

Facebook’s 500 million active users each share 90 pieces of content every month, including web links, news stories, blog posts, notes and photo albums. “The web is being rebuilt around people – shifting from the information web to the social web,” according to Facebook UK commercial director Stephen Haines.

And as consumers increasingly inhabit this space it gives marketers new means of addressing them individually, he adds. “The social web means that brands can put people at the centre of their marketing. In a world where people want to connect and share with the people in their lives, marketing is becoming more personalised.”

Cloud consumers are just as visible in the real world as on the internet. Along with keeping their content in the cloud, people are increasingly relinquishing physical ownership in order to pick and choose what they consume as it suits them.

Across all industries, cloud consumers have two key requirements. First, more flexibility. The alternatives to physical ownership usually involve the flexibility of renting more often, from a wider selection of options, and at a lower cost each time. In the fashion industry, for example, consumers can pick a new dress for every party and then return it to the cloud the next day.

In the automotive sector, services like Streetcar provide a vehicle parked just down the road that can be used at any time on a pay-as-you-go basis. For those who need to drive more often, meanwhile, manufacturers are offering loans that allow buyers to put off the majority of the purchase price, keep the car for a couple of years, then hand it back or trade it up.

The second key requirement is less responsibility. By choosing not to store things themselves, consumers pass on the risks and responsibilities of physical ownership. In cloud computing or the media industry, for example, this includes the risk of data loss from hard drives, and the need to transfer files onto new devices.

Consumers free themselves from similar risks in other industries. By not owning a car outright, for example, there is no risk of losing value when it comes to be sold. With a service like Streetcar, consumers are even released from the responsibilities of upkeep and running costs.

Viewpoints

Why is cloud consumption on the rise in so many different sectors?

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Brett Akker, co-founder, Streetcar

Where people might have viewed car ownership as a necessity a few years ago, it is now seen more as a luxury, particularly for those people who use a car on very rare occasions. In a city like London, that is the vast majority of people.

If you asked people four or five years ago what it costs them to own their car, they would probably have thought of fuel costs and that was about it. Today they are thinking of all the other costs associated with vehicle ownership – depreciation, road tax, parking permit and insurance. People will move towards car sharing where the service itself is as convenient as car ownership, but you do not have the other hassles and costs that go with it.

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Miles Shipside, commercial director, Rightmove

The inherent and continuing UK model is to buy your property, but there is a sector of buyers that just will not be able to get the finance. While there is a drop-off in the number of people that have an urgency to buy, people would still like to do so when they can afford to – they are just accepting that it is further away.

From a sentiment point of view, people often hope that financial crises are going to be over quickly and mortgage availability will return. I suspect there is a dawning realisation that a change of government is not going to solve this.

Banking crises that we thought were over are not necessarily so. Over time, there has been an acceptance that this is the status quo, and it is going to be longer before people can get on the housing ladder.

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Krister Nilsson, chief executive, Xcerion

The risk of data loss is increasing with devices becoming much more mobile, so cloud storage is a way of managing this risk.

The trend is away from using the cloud as a convenient way of moving files between computers to using it as a way of disconnecting physical storage from the files. It means that hardware can be replaced or added, but the data is always accessible.

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