Digital Hoarding: The Economics of Data Storage

We generate terabytes of digital data today that needs to be stored, ranging from photos on our phones to video clips to gigabyte-size files with sound and moving images.  Gone are the days of lean text-only files; today’s documents and presentations contain hyperlinks, GIFs, watermarks, and more.  With these large files, our computer hard drives often don’t hold it all.  Since many of us have multiple computers, ranging from our smartphones to tablets to laptops to desktops, we also want to access our files across our entire range of digital devices.  Enter the growing industry of cloud storage, where our files can be stored in a business’ server and accessed remotely from any Internet-accessible computer.

Cloud storage is a profit-seeking industry, and consumers must pay to be able to upload their files to these storage networks.  Sometimes, a certain amount of cloud storage comes included with the purchase of a device or operating system.  Beyond a minimal amount of storage, however, all Internet users who generate files have to pay if they wish to maintain guaranteed access to them.  The alternative is to use external hard drives, which must then be plugged into different devices. 

Opportunity Costs and Trade-Offs of Cloud Storage Versus Drives

Not paying an annual fee for cloud storage may sound appealing, but flash drives and external hard drives also cost money. The current generation of flash drives often hold a few terabytes and cost at least twenty dollars.  While this is more storage than you can get with cloud networks for the same twenty dollars, you have to carry the flash drive with you.  For some devices, like a smartphone or tablet computer, you may also need to purchase an adapter to be able to plug in the drive.  

There are risks involved with each option.  Flash drives can become lost or corrupted, meaning the user cannot access the data.  Cloud storage is generally considered safer in this regard.  However, in the event of slow or nonexistent Internet access, cloud storage files are inaccessible.  Some privacy proponents worry that companies can access files stored “on the cloud” and violate users’ privacy.  There are fears that data in millions of users' files could be used in algorithms to help target those same users for ads.

Ultimately, the biggest opportunity costs of using flash drives are convenience and redundancy: you must carry the drives, and if something happens to them you are out of luck.  Meanwhile, the biggest opportunity costs of using cloud storage are privacy and “vendor lock”: the vendor (storage company) may look at your data and make it difficult for you to remove it permanently or transfer it to another vendor.  Thus, the type of files you are storing may affect your decision in the cloud vs drive debate.

Why the High Cost for Cloud Storage?

Unlike a simple flash drive, cloud storage relies on full-scale computer servers that guarantee redundancy in the event of a problem.  Recent surveys have found that a majority of companies spent more on cloud storage over the last few years than they had planned.  One reason is the greater-than-anticipated volume of data to be stored, with more than half of IT organizations keeping over five petabytes of files.

Even when the marginal cost of adding more data storage is low, providers can charge market rates due to the high fixed costs for firms of storing their own data.  Moving data “off the cloud” is hard, so it’s easier for firms to continue paying for increased storage.  Despite being charged significantly more than marginal cost, firms find the market price of additional storage much lower than the hefty start-up costs for self-storage of data.  Unless a firm can guarantee that it will receive long-run cost savings from purchasing its own servers, it makes sense to continue paying [significantly higher than marginal cost] rates for cloud data storage.

Data Hoarding and Negative Externalities

Data hoarding occurs when companies keep large amounts of data in storage, even data that appears unnecessary for current operations.  This can be accidental or intentional, with employees instructed to save every file or email that they encounter.  Over time, this leads to exponential increases in data storage needs.  Unfortunately, it’s not just the client who pays for the high volume of data storage: third parties do as well through higher rates.

Rising Costs

As cloud storage companies grow, they face the same U-shaped average cost curves as other firms.  Over time, even long-run cost curves for large firms begin trending upwards again.  Newer firms to the market, needing data storage, are likely to have to pay higher rates than their established competitors, who signed storage contracts back when the data storage companies were more efficient.  This can be a barrier to entry to new firms that must store lots of data, as they now experience a higher per-unit cost than rivals.

Pollution

Data farms are a new phenomenon on the landscape, and can be spacious and noisy.  Residents of peaceful suburbs have been alarmed by the rapid rise of decibel-spewing data centers, which hum (or virtually roar) all day long.  These data centers also generate lots of heat and use lots of electricity, resulting in increased carbon emissions from energy production.  Therefore, the storage of old data has ecological costs because the electricity-powered servers must remain running.  As of 2022, it was reported that the cloud computing industry generated more carbon emissions than the airline industry; a staggering comparison.  

Some data centers also use water to keep servers and chips cool in a process known as immersion cooling.  This process removes a substantial amount of water out of availability for human or agricultural use.  Up to 80 percent of the water pulled for use by data centers eventually evaporates, with the remaining 20 percent becoming wastewater.  This reduction of available water for other uses will inevitably raise prices, harming other consumers.

Regulating the Cloud Data Storage Industry

The relatively new industry of cloud data storage is subject to many government regulations, though several may not be fine-tuned for cybersecurity.  There are many avenues for hackers to breach security protocols and steal data, often resulting from too many people having access to secure systems.  Customers want regulators to ensure that data storage centers are operating diligently: stored data can include sensitive information like financial transactions, medical information, student grades and disciplinary records, and information about criminal actions and witness statements.  If it’s a sensitive subject, someone is generating digital files about it and wanting them to remain secure.

Physical regulations are also desired, especially by those who live close to noisy data centers.  Some residents are protesting these data centers, while others are lobbying for local and state legislation to limit their noise and footprint.  They argue that these data centers do not produce enough jobs to justify their unsightliness and incessant buzzing.  Currently, a majority of U.S. states offer tax breaks to attract these data centers, which are seen as economy-boosting, but this could wane in the near future if complaints from nearby residents continue to escalate.