In summary, the difference between the two storage services is that Azure Blob Storage is a store for objects capable of storing large amounts of unstructured data. On the other hand, Azure File Storage is a distributed, cloud-based file system.
Azure Blob storage stores massive amounts of unstructured object data, such as text or binary data. Blob storage also supports Azure Data Lake Storage Gen2 for big data analytics.
While the block storage options available in Azure can be used for storage capacity in more traditional constructs, such as hard disks for virtual machines, object storage via Azure Blob storage enables more economical data storage for specific data sets.
A few items for your question:
If you are developing a new application then leverage the native Azure API directly into Blob Storage.
If you are porting an existing application that needs to share files then use Azure File Service.
Note that there are a few SMB protocol features that Azure File Service doesn't support.
A few other things to consider:
Azure File Service is targeted more to internal file handling. With internal I mean mounting a directory to a VM in the cloud or on-premises so it can be loaded in you back-end (SMB based protocol).
For sharing files with end-users (web or apps) it probably makes more sense to use blob storage as this simplifies downloading through a URL and securing download through Shared Access Signatures.
This post shares more details on the comparison (at the bottom): https://blogs.msdn.microsoft.com/windowsazurestorage/2014/05/12/introducing-microsoft-azure-file-service/
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