Let's talk about the elephant in the room: The Storj economic model (node operator payout model)

Node Operators
838

I’ve started observing a similar behaviour recently. I have access to data from my nodes (home ISP in Poland) and from a befriended company (who uses Hetzner in Germany for their servers). The Hetzner’s effective ingress (after removing GCed pieces) is almost twice that of mine over the last month.

There must be many, many nodes in proper connected data centers now, compared to home users. Hence I guess good connectivity starts becoming a survival factor for storage nodes, not just a competitive advantage.

I now wish Storj could publish some histograms of won races per node, maybe grouped by geography, maybe by AS.

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839

A simple example…

colleague, location: Germany
niemcy1

niemcy2
niemcy2763×179 11.2 KB

sister, location: Poland
polska1

polska2
polska2778×177 11.5 KB

2.82TB after 20 months
(I have long told my sister to turn it off)

840

I thought the Successrates Shows how many races the Node has won? Is there another metric about winning races?

841

From the last restart, unless you configured to redirect logs to the file (for docker version).
And sometimes the node logs a successful download/upload, when the customer is canceled the transfer at the end.

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842

2 nodes under the same IP. Rome Italy. 16 months and 10 months of age

immagine
immagine1170×2532 45.9 KB

843

@zip @BrightSilence

Your case is not representative.

Yes it is. It is 100% the same situation for me. 10Gbit business fiber, great peering to Frankfurt, 4TB after a year.

Good old days with huge ingress are over. That is also why your estimator is so wrong :kissing_heart:

844

Hi,

I have recently “gracefully exited” my node from the Storj network because the Storj economic model suffers, on my opinion, from the following drawbaks:

  • Since few months, the value of the STORJ token depreciates day by day. Its volatility makes “cash management” (convertion of Storj token in “real” money to pay the hardware and electricity) more uncertain and complicates the node operator earnings evaluation in $ in relation to the Storj’s pricing,

  • Converting the tokens into money requires going through intermediaries who take their tithes in passing, thus reducing node operator’s earnings.

So, I would suggest that Storj should:

  • Find a solution to smooth the fluctuation of the token,

  • Offer a direct currency conversion service.

Finally, as mentioned in some topics above, my preference would be to drop the bandwidth costs and increase the storage cost per month.

Hogion

845

Yeah, I may have to revise that statement a little based on the responses on this topic. Again, the estimator IS representative for all the nodes I monitor… but, it seems some nodes are seeing much worse performance. It might be related to geographic location, but it’s hard to pinpoint the exact cause based on anecdotes. If it is geographic location, that is a little troublesome as earnings prospects for nodes are worse in areas where more nodes are needed. @john this may be something you want to look into since you mentioned wanting to expand more in less covered areas. Perhaps you can already provide some information that we are overlooking so far.

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846

Payouts are converted to tokens on pay date, so fluctuations doesn’t matter if you convert as soon as you received it.

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847

As it shows the reality is not that operators are healthy.

From my previous post: Untitled spreadsheet - Google Sheets

Just increasing the storage price from 4$/TB to 5$/TB would make it profitable (without considering other resources…). Decreasing the piece ratio can also make it profitable with the same pricing. However, the pricing is bad from the beginning and discounter logic. Actually storj would have had advantages in competition to the other products out there, but massively undersold itself. Instead of selling at a proper price you went for being the cheapest. There has never been a value in being cheap rather than being good. Customers ultimately expect to trust a service and the first part must be that the business model is not thin air.

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848

A post was split to a new topic: Can you give the exact date and time when you will pay?

849
850

Maybe whould be useful some statistics displayed on the “Become a SNO” page, that shows the last 30 days/ 60 days ingress in each zone/country, informing someone who wants to become a SNO of what to expect. Maybe will discourage creating more nodes in some overpopulated regions, keeping it profitable for the ones that already have nodes in those regions, and encourage new nodes in lesspopulated areas (populated with storagenodes).

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851

Unfortunately, based on the anecdotes, it seems to be the other way around. Western Europe seems to get MORE ingress than eastern Europe, despite also having more nodes. Though as @Vadim pointed out, that is not consistently true.

852

I think it’s just tough to determine a working economic model at this very moment because we just don’t know how storj customer base will develop. Storj charges the same amount of money regardless of the customers usecase (hot or cold storage, multi-region availability etc.) and therefore has great potential to increase prices in the future or generate additional revenue with additional services.

The subsidy is only a fraction of the monthly expenses of the company and adjusting it now won’t make too big of a difference. With future success and additional features we will have less moving parts and therefore will be able to judge better how to adjust the payouts to meet reality.

Actually I am more concerned about the future scalability of the nodes than the current burn of storj for the egress.

As for now costs for the node operators are very low (often just attaching otherwise unused disks on systems that already run 24/7 anyway).

Let’s assume storj is very successful and steers into exabyte territory. Then of course subsidised payouts are not an option anymore. Additionally at some point the resource of “free hardware/disks” from node operators will be exhausted. To be able to grow available disk space you need to buy hardware and still be profitable. But if you don’t get a discount if you buy a couple of HDs and you can’t choose a location where electricity is inexpensive how can you compete with the big guys?

On the other hand if we’re at this point storj made an even greater splash on the market and this opens up new possibilities…

In other words: there is no need to change the payout model now. Once we have more data on how the customer base grows and what kind of traffic it attracts it’ll be easier to determine a model that will ensure sustainability.

Still, I’m looking forward to see what changes storj will propose :smiley:

Edit: was not aware that 12.5% of the full time staff had to go :frowning: , leaving the subsidised payouts as they are in a phase of growth while firing 12.5% of full time staff might at least be morally questionable (my personal point of view)

853

True, but it’s the one cost that will scale with size. Changes will be needed when that scale goes up. It’s a tricky balance, growing is more important than making money in this phase, but Storj Labs has the downside of having a volatile runway because of token value fluctuations. The crypto market drop was a pretty rough hit on that runway. Luckily value seems to be increasing a bit again.

But with good growth, perhaps they could attract some traditional investors to increase and stabilize that runway. I’m not sure though if this is something they are working on. I hope so to be honest.

As for letting people go… It sucks. But if making the wrong choices means Storj Labs runs out of runway before it’s profitable, it’s 100% of their staff out of a job. Storj isn’t (yet) a large corporate choosing profit over people, like the large layoffs we’ve seen in the news recently. Weathering the crypto crash and surviving is a real concern still. I’m sure they didn’t make that decision lightly. But I do feel for the people who worked hard for this who are now out of a job. (Though from what I’ve seen from anyone from the Storj Labs team, I’m betting they won’t be out of a job for long.)

As for node operator economics, it hasn’t been a great time for them either. Energy prices have skyrocketed in large parts of the world, while HDD prices have stagnated. Luckily that last one seems to be changing a little and HDD prices are dropping a little again. I still expect payouts will be effected when the new economic model drops, but they can afford to lower it too much when costs to operate have already increased a lot. It’s a bit of a perfect storm of bad luck at the moment that has very little to do with the long term viability of the Store model. So hopefully they can make it through this phase and come out swinging at the other end.

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854

Reposting this here from another thread:

How about the 150 GB free tier goes down? Or the price per TB goes UP?

You know, I was really excited for Storj. Especially seeing the progress they have been making. But it’s starting to sound like just another soon to be dead crypto project if this happens.

It already isn’t very profitable to begin with and everyone has been waiting and hoping for it to become MORE profitable, not less. Especially long term sno’s like myself. It’s been a hobby for now with the hopes of it turning into something more. In terms of current payouts, I don’t think most of us are looking for more per TB, just more data altogether. We understand this takes time… But if in a world where inflation is spiraling out of control, Storj is going to continue to practically give away storage at a loss only to pass that loss onto sno’s, why should we stick around?

Unless… the plan is to cut out the little guys and go with “commercial” node operators since at scale Storj WOULD be profitable enough to cut costs especially if done on already existing infrastructure.

Storj advertises itself as being 80% less than existing storage options. Sounds like my wife undervaluing herself because she lacks the confidence even though she’s brilliant. Does Storj lack confidence in their own product? Storj is new tech, superior to the existing storage platforms in many ways. Since when does anything new in the tech scene come in at 80% less than the old tech? I understand that the project is still small, trying to get it’s foot in the door and be competitive but 80%? Seems like theres PLENTY of “wiggle room” there… but instead let’s punish our dedicated node operators that have made this all possible in the first place!

The fact that they’ve always told us from the beginning not to buy hardware specifically for Storj should be a red flag at this point. I always figured it was in regards not wanting people to blame Storj if the project tanked or whatever but I’m starting to think smaller sno’s were never really part of the long term plan.

Let’s face it… Storj claims they want to reach exebyte scale right? This will NEVER happen with average everyday people sharing “unused disk space”. This would require sno’s willing and able, to expand and scale with the network, something we’re told not to do, and now there’s going to be even less incentive? Telling you right now people, they start this and it goes the way of bitcoin mining. Only the people with stupid money will be able to make anything and everyone else get’s the short end of the stick.

Oh, and for those who will respond to remind me about the /24 limitations, I’m fully aware… but you have to remember Storj can change that if it’s financially beneficial to them.

End of rant.

855

If Storj does do as expected and reduces payouts - I wonder what that means for the future of the current test network as well. Since SNO’s are providing a free service for what hopes to be a for profit company.

856

Ok maybe not the end.

I’d like to clarify that some of my frustration here with all of this stems from other areas. My wife and I own a financial consulting company that works with multiple crypto companies so I have some insight on the internal workings of many projects. I obviously can’t say who they are but I want to be very clear that Storj is NOT one of them. I have no knowledge of the internal workings of Storj or their finances and only know what has been shared publicaly. Anything else here is pure speculation. Again, I have NO affiliation with Storj whatsoever other than being a node operator and holding Storj tokens.

That said, I do see multiple projects on the verge of tanking mainly due to mismanagement of funds and / or having no clear means of turning a profit. There are also a lot of young people involved with managing new businesses with a lot of “free” money coming from the crypto craze. I’ve seen multiple buisness models that have negative cash flows due to the heavy reliance on this “free” money and the hope that markets will simply never stop going up. Now this is understandable for a company that has a product or service still in development, but once you have something marketable this should start to change.

In the case of Storj, there is and has been a marketable product for a while now. However Storj is still to heavily reliant on that “free” money. It’s fine if the company might still be in the red due to other expenses like continued development, marketing etc, but the’re not even charging enough to cover the most basic expense of the storage network itself. Even if they cut payouts to sno’s down to match what they currently charge, which is a pretty big cut, they’re still only breaking even TB for TB. There’s still nothing left over to start covering other costs. I can only see one way this model could possibly be successful, and that’s if the end goal is to cut out Storj as a company altogether in favor of a 100% fully decentralized model where the customer pays and the node operators receive all without the middleman. This would also mean no funds for marketing or further development so this would have to come from other means.

Now I’ve mentioned this briefly in another post somewhere but I’ll repeat it here. Storj claims to want to compete with the big data giants and achieve exebyte scale someday, but I don’t understand how this is supposed to work. Storj has no fully featured front end UI like what we’ve come to expect from cloud storage providers. Storj is more of a backend storage solution for other developers to build upon. This essentially makes Storj a middleman. They help facilitate the sale of storage space to other companies who need it… a company who’s name will mainly only be known within the tech world and never publically on a mass scale like Google, Amazon etc who they claim to be in competition with. In certain cases yes, they are a competitor, but unless Storj directly targets the retail market in some way, meaning everyday consumers, I just don’t see how they plan to do it. They don’t specifically target the retail consumer market, yet the price being advertised as an 80% savings seems to be geared towards just that. Companies with huge amounts of anything will typically switch providers / suppliers for FAR less grated the’re a solid option without any huge risk involved. If this is why Storj is so cheap right now fine, but it should be temporary. An introductory / promotional price, not the permenant one.

You wonder why people (especially large companies) would be hesitant to move to the Storj network? Remember what I said before about switching to a new provider? If I’m someone in charge of looking into moving huge amounts of data somewhere else I’m going to do my homework first. I want to know that it’s a long term solid option. And from what I can see, there’s no way to reasure me that Storj will be around once that “free money” dries up. I would never consider Storj even at an 80% savings because it’s an unsustainable business model. So forget marketing for now and fix this. Otherwise the only customers will be experimental and “ehh what the hell” customers because maybe their data isn’t all that important. The best example of this would probably be backup data like in the case of iXSystems. If Storj went away and all I had there was backup data, I’ll just back it up somewhere else. This also hurts node operators as backup data generally isn’t high egress data. Just saying…

So yeah, I’m real curious to see what Storj is going to do about all this because it looks to me like even if we gave all our data to Storj for free it wouldn’t be enough to sustain the company. This doesn’t look good and doesn’t help recruit customers. Maybe Storj should offer only a marginal savings but prove themselves as a solid company that’s not going to blow away in the crypto winds. I also think developing a front end comparable to other cloud storage providers to target the consumer market would be huge. Then offer THEM the insane savings (with limitations) as a promotional marketing strategy. This will get Storj’s name out there as a competitor with other tech giants. The general public will have a better understanding of the tech. Use the consumer market to prove the network to the commercial market which has far higher standards then everyday people. Storj could also profit by charging more for premium features. Storj might not want to get involved with all this, but what else do they have to offer in order to turn a profit?

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857

Storj Labs works with and has many corporate customers. The use cases vary. The low price is significant but so is the great performance. There are certain things Storj does very well and offers solutions that the entrenched companies do not.

I don’t know how deals are negotiated at Storj, but typically a large customer has asks they want completed before they will sign. And corporate deals usually have additional support contracts built into them that cost additional dollars over storage costs. I am sure Storj works similarly.

As JG pointed out previously, the adjustments being made are to secure a long term future for the company. There are a lot of very smart people working at Storj Labs day and night to make this a reality. Since the start, this hasn’t been like any other crypto project I’ve seen. The people here are dedicated to making a great product and a great company. Nobody is buying lambos and mansions. Some of the sacrifices employees have made to further Storj along are notable.

We want SNO’s to succeed. But we can’t subsidize them forever. How that gets worked out, we will find out soon enough. I have been here a long time and I know from experience that any changes will meet resistance and threats of people quitting and all that. All of it is a concern to us, and we would like everyone that is a SNO to stay being a SNO. But the reality is that the economic model will change and it likely won’t work for some. But in the end, it will be a sustainable earnings amount that a SNO may find themselves earning consistently a decade or more from now. That’s the ultimate goal, so Storj doesn’t end up in the red and instead builds itself up firmly in the black.

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