Consider places like dropbox; they represent a huge demand for cheap storage. People probably (?) won't want huge(er) drives in their home computers going forward, but they are quite likely to want cloud storage if it comes down another order of magnitude in price. Just because people don't necessarily directly consume hard drives doesn't mean there isn't a large demand.

This is a good point that I didn't address in the post. I'd thought about it a while back but I omitted discussing it in the post.

A few counterpoints:

• Dropbox is all about backing up data that you already have. Even if everybody used Dropbox for all their content, that would still only double the need for storage space (if Dropbox stores everything at 3 locations, then it would 4X the need for storage space). This doesn't create huge incentives for improvement.
• In practice, Dropbox and cloud services wouldn't multiply storage space needs by that much, because a lot of content shared on these would be shared across devices (for instance, Amazon's Cloud Music Service doesn't store a different copy of each track for each buyer, it just stores one, or a few, copies per track). And many people won't even keep local copies. This would reduce rather than increase local storage needs. Even today, many people don't store movies on their hard drives or in DVDs but simply rely on online streaming and/or temporary online downloading.

I should note that I'm somewhat exceptional: I like having local copies of things to a much greater extent than most people (I download Wikipedia every month so I can have access to it offline, and I have a large number of movies and music stored on my hard drive). But to the extent that the Internet and improved connectivity has an effect, I suspect it would be ranging from something like multiplying demand by 4X (high-end) to actually reducing demand.

The point about camera, still, and video is good, and I do see applications in principle that could be used to fill up a lot of disk space. I don't think there is a lot of demand for these applications at the current margin. How many people who aren't photographers (by profession or hobby) even think about the storage space of their photos on their hard drives? How many people shoot videos and store them on their hard drives to a level that they actually have to start thinking about disk space considerations? I suspect the numbers involved here would be negligible. But I could be mistaken.