Cloudflare To Enter Infrastructure Services Market With New R2 Storage Product

Cloudflare, which has a network of data centers in 250 locations around the world, announced its first dalliance with infrastructure services today, an upcoming cloud storage offering called R2. From a report: Company co-founder and CEO Matthew Prince says that the idea for moving into storage as a service came from the same place as other ideas the company has turned into products. It was something they needed in-house and that led to them building it for themselves, before offering it to customers too. 'When we build products, the reason that we end up building them is usually because we need them ourselves,' Prince told me. He said that the storage component grew out of the need to store object components like images on the company's network. Once they built it, and they looked around at the cloud storage landscape, they decided that it would make sense to offer it as a product to customers too. The R2 name is a little swipe at Amazon's S3 storage product and obviously a play on the name. The difference, according to Prince, is that they have found a way to reduce storage costs by up to 10% by eliminating egress fees. Cloudflare plans to price storage at $0.015 per GB of data stored per month. That compares with S3 pricing that starts at $0.023 per GB for the first 50 TB per month. Ben Thompson, writing at Stratechery: The reason that Cloudflare can pull this off is the same reason why S3's margins are so extraordinary: bandwidth is a fixed cost, not a marginal one. To take the most simplified example possible, if I were to have two computers connected by a cable, the cost of bandwidth is however much I paid for the cable; once connected I can transmit as much data I would like for free -- in either direction.

That's not quite right, of course: I am constrained by the capacity of the cable; to support more data transfer I would have to install a higher capacity cable, or more of them. What, though, if I already had built a worldwide network of cables for my initial core business of protecting websites from distributed denial-of-service attacks and offering a content delivery network, the value of which was such that ISPs everywhere gave me space in their facilities to place my servers? Well, then I would have massive amounts of bandwidth already in place, the use of which has zero marginal costs, and oh-by-the-way locations close to end users to stick a whole bunch of hard drives.

In other words, I would be Cloudflare: I would charge marginal rates for my actual marginal costs (storage, and some as-yet-undetermined-but-promised-to-be-lower-than-S3 rate for operations), and give away my zero marginal cost product for free. S3's margin is R2's opportunity.

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