From Innovations, a website published by Ziff-Davis Enterprise from mid-2006 to mid-2009. Reprinted by permission.

Today’s Web 2.0 companies are the fastest-growing part of the Internet economy, where cheap storage is one of its essential technology drivers.

Disk storage – that most prosaic commodity of computerdom – is giving birth to a whole new breed of innovative businesses on the Web. It can be a springboard for innovation in your company, too.

Most people don’t pay much attention to the disk drives in their computers or servers. Perhaps we’ve noticed that they’ve gotten a good deal cheaper in recent years, but storage is not the kind of thing that gets people excited. However, data storage has been one of the most exciting areas of innovation in computing for the last decade. The remarkable declines in storage prices – I figure them to be about 40 percent per year since the invention of the rigid disk drive in 1957 – have made what was once a precious resource into a cheap commodity.

Consider this: IBM figured that the amount of storage in a standard PC hard drive circa 2003 would have taken up more than a square mile of disk drives in 1957. And the prices have come down 90% since then. This is, quite simply, the most remarkable price deflation in the history of the world.

So what happens when a resource that used to be expensive becomes essentially free? A lot of innovative business ideas spring up. Consider YouTube, the video-sharing web site that recently sold to Google for $1.65 billion. YouTube and services like it enable people to store videos at no charge. Other free sites like Flickr, Blogger, and eSnips use a similar business model to let members publish and share their words and images. It would have been unthinkable just a few years ago for these businesses to survive. But today, the so-called Web 2.0 companies are the fastest-growing part of the Internet economy. And cheap storage is one of the essential technology drivers.

That’s just the beginning of the innovative potential. Marketers are learning to take advantage of viral marketing, in which information about products and companies is spread by people sharing links to interesting content. Many companies are now encouraging their customers to actually create multimedia ads for them and upload their masterpieces to a server. Check out The Nerd League and BoltBand for a couple of examples.

There are many other opportunities for businesses to innovate around the promise of inexpensive storage. You may already be posting manuals and documentation for your customers to download. Why not add video how-to courses? Start a contest and ask customers to upload photos of themselves using your products in innovative ways. Post video interviews with some interesting people who design your products or run the company, as Microsoft and General Motors have done. Or, for internal use, take on that big data warehousing project you weren’t previously able to afford.

Ideas like these will only proliferate as the cost of computing continues to fall. I call it the “technology leverage effect.” Small changes in technology can have a ripple effect that leads to massive changes in business and in our lives years down the road.