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Summary:

Online storage companies pop up more frequently than mushrooms after a downpour in Southern France. And like the wild-growing fungus, not all of them are easily digested. Case in point: AOL’s Xdrive, which despite corporate backing recently joined the likes of Omnidrive on the proverbial technology garbage dump. So how does one survive in this sea of startups? Continue Reading & Find Out.

Online storage companies pop up more frequently than mushrooms after a downpour in Southern France. And like the wild-growing fungus, not all of them are easily digested. Case in point: AOL’s Xdrive, which despite corporate backing recently joined the likes of Omnidrive and MediaMax on the proverbial technology garbage heap.

That doesn’t dissuade entrepreneurs and their backers from joining the fray. At last check, we counted more than two dozen startups trying to carve a piece of the online storage pie in the hopes that they’ll get enough traction to one day make money. Along with clever and colorful names, each one claims a subtle twist — syncing, access from mobile, or whatever — on what is essentially a commodity offering: storage.

Sure there are some services that are clearly superior (SugarSync, for example) or have nifty features like automatic syncing (Dropbox), but when viewed as a group, it’s hard to tell which one is going to emerge as the winner over the long term. When you think about it, the online storage business is no different that selling denim jeans that have different shades of blue, rivets, fits and flares.

Storage startups similarly distinguish themselves with storage capacity, or features such as the ability to sync automatically or share large files. These days many of them have started to use Amazon’s S3’s wholesale storage to power their services, which makes the differences in some case largely cosmetic.

I am constantly asking these startups how, exactly, they plan to make money. I typically get one of two standard answers: by selling ads or charging for additional storage. Nice ideas in theory, but clearly out of sync with reality.

In order to make a decent amount money off advertising, these startups need to generate hundreds of millions of page views, unlikely unless they allow people to share large files, which can often lead to a legal mess.

The presence of a large number of players with no clear leaders means there is little hope of making money in the online storage business from advertising. It also explains why Xdrive, which is owned by AOL, a division of Time Warner, is getting out of the business.

How about getting consumers to pay for storage? Even that seems to be an uphill task. I have spoken to a few founders of online storage companies and they’ve admitted that conversion rates to paying customers are abysmally low. Why? It is the same pesky problem of too many players, which allows you and I to spread our files all over the Internet without spending a dime.

One of the services that seems to be doing quite well is Mozy, which was acquired by EMC, mostly because it had started to sell to larger companies. Mark Lewis, an EMC executive, was quoted as saying that Mozy may be popular with consumers, but it is a perfect solution for large companies as well. The company hasn’t revealed how many people are using the service, but Mozy.com does get about 100,000 people checking it out every month, according to Compete.com, a web site traffic tracker.

So what are the options for surviving in the online storage business? Actually there are a few tricks that can help startups both stand out and thrive. SmugMug, for instance, has used Amazon’s S3 as its back end to offer a for-pay niche service optimized for professionals like photographers and building features such as watermarking. Of course, these opportunities are few, and folks like SmugMug have already staked out their position.

The other option is to shift focus away from storage to “collaboration.” Using online storage as an underpinning to share documents, files and folders with people in your network (whether consumer or corporate) is the right approach.

Microsoft is doing quite well with its SharePoint service, which is essentially storage layered with other services. Chris Caposella, corporate VP in charge of the Redmond giant’s business division, described SharePoint as “the office suite for the next generation.” This service is so popular that it’s expected to bring in about $1 billion this year for Microsoft. What’s working well for Microsoft, and to some extent, Google, is that they are treating storage for what it is — a cheap throwaway service — and layering it with more valuable ones.

One company that seems to have gotten the “collaboration memo” is Box.net, a Palo Alto, Calif.-based startup that has developed an open-collaboration strategy. Box.net is using its API to interface with other web services such as Autodesk, EchoSign, eFax, Myxer, Picnik, Scribd, Zazzle, Thinkfree and Zoho, and in the process becoming a major collaboration platform that rivals SharePoint. Box.net calls its strategy OpenBox.

This is an offering that Box.net CEO Aaron Levie can sell to businesses –- big and small — as a service for a monthly fee. And perhaps that is one way he can avoid the fate of some of his more prosaic rivals.

This was originally published on BusinessWeek.com.

  1. $20 per month for 15GB online storage as offered by Box.net is a very steep price. I hate to give out a secret, but if all you need is cheap online storage, have a look at the web hosters. E.g. 1and1 currently offers 120GB FTP space for $5 per month. Or get 300GB for $20, 20 times of what you get from Box.net. And you can sync to FTP or even mount it as a local partition …

    /Christian

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  2. Maybe 8 years ago I tried an on-line storage facility called Driveway. When I retrieved the files, I found that I was unable to open/read them. Something had happened in the transfer. Maybe it would have worked for Windoz traffic, but it certainly failed for Mac and MicrosoftWorks files.

    The pro: it was free at the time.

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  3. Om, great stuff. But may I suggest the addition of the word “Online” to your title? There’s a whole world of storage startups out there that aren’t in this game — and are happy they aren’t, I might add… :-)

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  4. The issue I have, as I tweeted it this morning, is my data safe & who can we trust in this cloud computing process? Is paying Apple for mobileme enough to trust them to keep our data safe? I wonder if building yourself an offsite storage solution is the answer. Whether it’s archived CD/DVD discs at someone’s home, or a small server sitting elsewhere. I still don’t believe in all these offsite storage solutions because they could be here today and gone tomorrow. Where does my data go then?

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  5. I find that Dropbox (getdropbox.com) separates itself from the others
    by being incredible easy to setup and use (even my mother gets it)
    and having a very clean web interface. It has almost no “features”
    or options. It does one thing well.

    And it is the only system that supports Windows, Macs and soon Linux
    cleanly. (I am testing the Linux alpha release)

    It also makes sharing folders with other users easy.

    Like Cringely’s recent article just being a bit simpler/better is
    sometimes enough.

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  6. AOL putting their foot in another steaming pile of their own byproduct (Xdrive) shouldn’t surprise anybody. It mirrors the way they gracefully tripped over their own shoes when the rest of the world was migrating quickly to high speed internet providers.

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  7. There are alot of alternatives in this space, but anyone looking for solid online storage should check out wizzdrive, I’v been using them for a few weeks now and I have uploaded and downloaded data with no issues. In terms of owning a startup and working with storage issues cloud storage is becoming extremely effective, much like SmugMug used S3 alot of other companies are moving over to Nirvanix also, I hear they are more simple to use and offer 24/7 customer service,unlike Amazon. S3 tends to go down alot, so there is always a concern there.

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  8. What I don’t get is why anyone would enter any relationship with an “online storage provider” (or WTF you call this category of products) when you can just buy a server and FTP your content to that server. Servers are so inexpensive anyway, and with this approach you have unfettered access to a networked device that only YOU are logging into.

    Not to mention the fact that many of the people considering these online storage services could probably fit most of their data on an external hardrive / backup. How there could be so many competing vendors offering similarly uninteresting / unnecessary service – not sure I understand either.

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  9. [...] Om Malik has a great post about this today at Giga, and his key point is that there is little hope to get anyone to pay just to store data. One needs add on services. Let the add on games begin!!! [...]

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  10. Om- I agree with scope of article however focus is too narrow i.e PC to Cloud storage. For SMB and Enterprise, the biggest hurdle and therein the opportunity in days to come is likely to be how to protect/store and manage stored data and leverage aspects like collaboration/sync up services etc as an overlay. So, potentially a hybrid model may emerge -marry attributes of the premise such high speed LAN for local storage with that of Cloud for archiving/anytime access/Collaboration etc .
    I call this Storage 3.0..

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