Why 'free' storage isn't free

Storage isn't free - and neither is 'free' storage. The price: uncertainty. Wuala's termination of 'free' storage is the tip of the iceberg coming your way.

Pioneering cloud storage company Wuala — now part of Seagate via LaCie — has announced the termination of all free storage. They won't be the last.

Dropbox and Box were both expected to float initial public stock offerings this year. But their wretched financials spooked even loss-friendly tech investors.

Put the crack pipe down and take two steps back

box logo

How wretched? Box's 2014 revenues were a respectable $124 million, about double 2013 revenues. But their net loss was a whopping $169 million because their expenses were more than twice their revenue.

This what finance people call an unsustainable business model. Or what you might call a company on crack. The Box IPO is on hold.

There's less data on Dropbox, but the fact that they haven't filed to go public suggests a problem as well.

Economics 101

If something can't go on forever, it won't. That's why economic bubbles burst.

Free storage can't go on forever because it costs money. It costs a lot less money than it did 30 years ago, when disks cost $20/MB — today we're closing on $20/TB — but real dollars at web-scale.

Which gets us to the cost of "free" storage: It can — and likely will — suddenly disappear because the company providing it can no longer afford to offer it free. You may have to scramble to get your data out in time, or lose it.

The Storage Bits take

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Wuala is being responsible, giving users almost three months to download their data — and being based in Switzerland, they offer real security advantages. But when Nirvanix croaked, they gave their paying customers two weeks — but later extended it — to find a new hosting company.

It isn't just storage, of course. All kinds of "free" services come and go — just ask Google users.

Bottom line: You can't count on "free" services. Uncertainty is the price you pay.

Use "free" to try the service, but if you aren't paying with either dollars or personal information, you're asking for a nasty surprise.

Comments welcome, as always. Bitly is probably my favorite free service that went away. What's yours?

Update: Dropbox PR contacted me to assert that this piece contained "some inaccuracies and misleading statements" regarding their IPO plans. While they haven't filed an S-1 with the SEC - as Box has - they've admittedly been bulking up on executives with public company experience, a common prelude to an IPO. Market turmoil can also affect the timing of IPOs, but, IMHO, the bigger issue for Dropbox is their $10 billion valuation after their last round of funding. That means their business model has to justify an even larger IPO valuation. End update.