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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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  11. Om,

    I suspect your VoIP comment (Kevin Lynch article) will be true here, too:
    “Oneline storage [VoIP] unfortunately is [was] a feature (a very important) masquerading as an industry.”

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  12. [...] enabled us to produce a product and service that keeps us excited and pushing the space forward.  Om Malik recently picked up on this distinction, and has written a post which helps explain the misalignment of costumer expectations (read: what [...]

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  13. Om,

    It is difficult to make money in storage field, but not impossible, even without large company backing. We run two services IDrive.com (http://www.idrive.com) a consumer/Small business class online backup service and IBackup.com (http://www.ibackup.com), a small to medium size business class online backup with expected revenues for this year in 12+ Million range, and profitable.

    As they say, god is in the details, in execution. Even mozy, was only marginally successful and had to be sold to EMC to be really successful.

    You need to look around a little more to find successful entities in this segment especially since it is fragmented. We have seen this classic feed-off other bloggers in covering the same services (such as mozy) in every article they write about; not that there is anything wrong with mozy (to quote from Seinfeld).

    Raghu Kulkarni
    CEO
    Pro Softnet Corp

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  14. Nice post Om – and it can be expanded to include a number of other Web 2.0 services – at the end of the day businesses need to have a pretty clear idea of how a web property will be monetised – it costs cash to feed developers, servers and bandwidth and without the fuel…. well you end up getting nowhere

    Bubble anyone????

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  15. Microsoft’s Live Mesh does it all. No startups needed.

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  16. [...] August 10, 2008 at 4:40 PM PT Comments (0) Last week in my analysis of online storage sector, How to standout in the sea of storage start-ups, I pointed out that many start-ups were having a tough time convincing folks to upgrade from free [...]

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  17. [...] Om Malik of GigaOm has posted two interested entries recently – the first chronicled the recent failures in the online storage space and posed some interesting questions about what is really viable. The ultimate question was how to [...]

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  18. Well come to think of it. I am already signed up for five storage service. Amazon S3, Dropbox, Wuala and Box.net.

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  19. [...] like Dropbox or FolderShare. I’m not sure I agree with him. He’s right when he says storage startups are a dime a dozen, and have to do something to stand out from the crowd, but the iPhone is still an aspirational and [...]

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  20. [...] Malik, Sunday, August 31, 2008 at 6:43 PM PT Comments (0) My post, How to standout in a sea of storage startups resulted in a spirited conversation, including some really insightful comments here and else where [...]

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  21. [...] How to Stand Out in a Sea of Storage Startups [...]

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  22. You’re totally wrong. You could have said the exact same thing about search 10 years ago. A commodity service that didn’t generate any revenue with a bunch of different companies trying to take a piece of the market (webcrawler, yahoo search, altavista, hotbot, dogpile, msn).

    You will be proved wrong in time. No sense in arguing it here.

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  23. It seems to me he’s setting up an online storage of his own and trying to discourage competitors.

    It can be done ad based, file sharing can happen, you don’t need to go with amazon s3, it’s way too expensive.

    Sooner or later storage will be free, I might as well try it rather than another. And if the fact that there’s dozens trying means that its going to happen, it’d be worse if there were nobody, that’s a real bad sign.

    Why the big guys aren’t trying? what do you know if google will do it next week, those guys are planning to put self powered datacenters floating in the sea, the problem is that they would have to do a much larger deployment than the little guys, maybe they’re not ready for those costs, but you can see signs of this happening with Gmail, and with Google Apps hosting a bunch of office documents and grabbing by the balls.

    It’s not like selling jeans cause you’re offering storage, it’s the added value around the files what matters. Why do I have lots of office documents on Google Apps and not on DropBox, because I can use these files anywhere, without installing anything.

    It’s going to happen, don’t believe this guy, he doesn’t know what he’s talking about. And when one of those little guys manages to do it, Google better buy them quickly, because storing the world’s files is somewhat of a very powerful responsability.

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  24. Of course it will happen. The crucial issue here however is that there are normally fairly managable limits on the amount of space a user will use for email hence the success of Gmail which offers great innovation and plenty of space. With regard to general data which comes in much larger volumes, open file management and database requirements there are significant cost in providing a service for free. The biggest difficulty however is not a cost or technology issue but an advertising issue. Gmail users check their email many times a day. Online backup users only see the application on a restore requirement so the advertising is less lucrative while the costs are far greater. Innovation and reducing costs will see that these difficulties are overcome and yes Google are likely to be at the fore through innovation and buyouts.
    John
    http://www.backupanytime.com/blog/whos-who-in-data/

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  25. [...] not talking about online backup services, which include players like Carbonite or Moxy, but rather software and systems that offer [...]

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  26. [...] of their data on their backup drive as well as in the cloud. It has a few differences from the myriad other storage options out there, such as being about to back up information while the computer is turned off, but it still will [...]

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  27. [...] a post last year, I argued that one way for storage startups to stand out would be by using the online storage drive [...]

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  28. [...] business for quite a few years, I have become increasingly convinced that many of the startups will have to retweak their focus and find new opportunities to stay relevant and stay in [...]

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  29. [...] services through advertising. They failed miserably because, as Om Malik pointed out in his blog: http://gigaom.com/2008/08/06/how-to-stand-out-in-a-sea-of-storage-startups “In order to make a decent amount money off advertising, these startups need to generate [...]

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  30. I agree, there are just too many and they all look the same.
    They all back up data differently though.
    I like the way DriveHQ works. And it works well.

    Some aspects worth looking at:

    Integrated with Windows file manager.
    Reliable and stable software.(Windows only)
    Realtime or scheduled backup.
    Backup of files in use.
    Backup Folders or individual files.
    Retention of file versions as changes are made.
    Reasonably priced.
    1 Gig free.
    The Company is focussed on quality.
    I believe their product is underrated. Probably one of the very best services available.
    See my website for discussions and recommendations on this subject.

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  31. Another option is to target a specific location.
    For exemple, the online storage company DotSpirit has focused on the French market, and is now number 3 in France after SkyDrive and Humyo.
    http://www.dotspirit.com

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