Are the Days of Free Cloud Storage Over?

That unlimited, free cloud that you’re so used to storing all of your data on may soon be a thing of the past. What happened to RapidShare’s customers a week ago, could end up being the new norm as storage providers struggle to make money by giving away free unlimited storage.

Last week, RapidShare pulled the carpet out from under millions of customers who used their non-premium, free, unlimited storage package by limiting them to just 5GB of free storage.  The company told users that they had until  April 8 before switching to their premium paid service or else files over the limit would be deleted.

The company said that it had to start charging customers because “a rather small group of users used the unlimited offer in an excessive way making it impossible to maintain our service the way our users know and appreciate it.”

Storage providers have costs such as storage, bandwidth, and infrastructure, and the current pricing models, even for the largest companies that don’t give away free storage, are nonprofitable.

Take for instance, Carbonite.  As one of the world’s largest providers of online storage, Carbonite charges a base price of $59 per year for unlimited storage.  However, the company reported a net loss of $18.9 million for the full year 2012.

Geoff Barrall, CEO of Connected Data, which makes an alternative data storage product called Transporter, believes that the current pricing structure of cloud providers isn’t sustainable.

“I don’t think its an area that anyone’s going to make any money in, and ultimately, for most of the providers, the business models just won’t be sustainable- and so they’ll either have to shut the business down or they’ll have to charge a higher price,” Barrall said.

Transporter is different from a cloud because it is a piece of hardware that consumers buy and own instead pay an ongoing rental fee.  Transporter still allows you to share files with others and backup files remotely, however, the data sits on a $199 piece of hardware in your home or business instead of on a remote server. Plus, unlike the cloud, Tranporter is completely private, which Barrall believes is another reason why it’s a better option for people that have sensitive data.

“The government can’t walk into your home and take your data, but it if it’s in the cloud, the regulations are very different,” Barrall said.  “So when you put your data in the cloud- the terms of service outlines this – you basically waive all rights to protection of that data as your individual property and it becomes the property of the cloud service provider, and if anything happens to the cloud service provider, that data can be transferred as their property so you lose all rights to it.”

In the case of online storage provider Megaupload, the U.S. Department of Justice shut down the lucrative offshore file transfer site, popular for streaming pirated movies.  Individuals using Megaupload have tried to retrieve their data in the courts but still haven’t been able to do so.

Plus, the extreme competitiveness in the cloud space is prolonging the free, unsustainable pricing model.  New cloud providers are literally popping up every week.  Two cloud providers that have recently emerged from beta include Cubby and Bitcasa.  And a few other smaller players have emerged recently including BackupAgent and GreenQloud.

“A market this competitive won’t be able to afford all of the different providers.  At some point this whole thing is going to have to shut down – you’re going to get left with just a few providers and those providers are going to have to charge more,” Barrall said.  “So there’s a correction coming in this market we just don’t know when it’s going to be.”

The kind of correction that Barrell is talking about could mean some consumers will be unable to get their data. What will you do if you have 20GB of data of “free” storage that’s being housed on a server in another country and the company goes out of business?  Well, you get you what you pay for.