What happens to the data when an online storage site closes?

Online storage sites, the toast of the Internet circa 2006, are shutting down in droves, putting the data and images of their users in jeopardy.

Online storage services that have announced closings in the past ten months include big names in tech: AOL (Xdrive and AOL Pictures), Hewlett-Packard (Upline), Sony (Image Station), and Yahoo (Briefcase). Plenty of lesser-known online storage firms also have kicked the bucket, including Digital Railroad and Streamload MediaMax, which turned into The Linkup.

Using these sites used to be a no-brainer--you just uploaded your summer-vacation pictures or your business files and then shared or used them anytime you wished. Now you have to wonder: Will my information still be around tomorrow?

When a Convenience Turns Into a Crisis

Canadian freelance photographer Ryan Pyle lost thousands of digital photos when Digital Railroad abruptly shut down last October. The online storage service posted a note to its Web site (text of note) stating that it ran out of money and would have to close. Digital Railroad gave customers 24 hours to remove their images before the files would be destroyed.

Pyle, who is based in Shanghai, China, lost over 7000 images that he had painstakingly edited, created captions for, keyword-tagged, and uploaded as part of his professional online archive. Pyle says the original digital images were safely stored locally, but the hundreds of hours he had spent creating an online portfolio were gone.

"One day everything was fine, and the next I had 24 hours to get all my images off of the company's servers," Pyle says. Access to Digital Railroad following notification of the deadline was severely limited at first, as a crush of customers rushed to save images hosted on the company's servers, according to Pyle. Pyle says he was able to retrieve fewer than a dozen of his images. He quit his efforts to save his portfolio at 2 a.m.

Cloud Computing Loses Some Steam

The failures of popular online storage services are giving cloud computing a black eye. For years Internet companies invited people to store photos and data online, promoting the services as smart alternatives to storing data on a local PC or backup drive. AOL once stated in its Xdrive service's marketing literature: "You'll never have to worry that a computer crash or virus will destroy all your files because they will always be safe 'n' sound up on Xdrive." Xdrive officially closed in mid-January.

The bloom is off online storage, according to Kurt Scherf, vice president and principal analyst with market research firm Park Associates. He says the online storage market is in the bust stage. "It comes down to economics," Scherf says. He notes that too many online storage firms are chasing after too few dollars. "There isn't a lot of money to be made by parking someone else's data on your servers," he says. "Companies without a business model are going to fail."

Is Free a Good Business Model?

AOL spokesperson Allie Burns says that the AOL Pictures service couldn't financially justify its own existence. Over the past year, AOL as a company has undergone some painful cost-saving cuts. "We took a look at what products didn't make sense to maintain. And ultimately we needed to reduce cost," she says.

Still, some free online photo services claim that they can make storing your digital images profitable.

Representatives of PhotoWorks, American Greetings' free online photo site, say that business is good and that the site plans to stick around indefinitely.

Sally Babcock, American Greetings' general manager of digital photography, says the difference between PhotoWorks and its struggling competitors is that people actively use PhotoWorks to share images, buy prints, and purchase photo merchandise. She says that services such as AOL's focused too much on straight storage.

"It's expensive to maintain millions of images, but we're making it work," Babcock says. She declines to say how much PhotoWorks earns and what the associated costs are for storing millions of images. Experts estimate that it costs companies like PhotoWorks around $100 a month to manage 1TB of data.

As for data storage firms, Alan Williamson, cofounder of the cloud computing firm AW2.0, says that the most successful consumer services, such as EMC's Mozy online backup site or the collaboration site Box.net, are successful because they have a narrow focus on business users who are willing to pay monthly fees to share data with collegues, and to use the site's online tools to conduct regular data backups. Williamson warns that consumers should think twice about relying on free or low-cost sites that only store data.

Failing Gracefully and Disgracefully

The one thing that AOL and a lot of the big tech firms have done right: They have given their customers fair warning to move their data to a safe place before pulling the plug on the services. AOL, Hewlett-Packard, and Yahoo gave their customers months to remove data before shuttering their services. AOL brokered a deal with PhotoWorks and the Pixum photo-gift site for image transfers. AOL now offers a tool to sideload data and photos to those new accounts, too.

Smaller firms such as Digital Railroad apparently didn't have the luxury of giving users fair warning. A company with no doomsday plan is setting up its customers for a data disaster, says Lauren Whitehouse of Enterprise Strategy Group.

What is problematic about the smaller online storage companies is that they engaged in a classic virtual land grab, Whitehouse says. "They rushed out and acquired as many customers as they could, fast, without thinking about the long term," she says. Inevitably, without a real business model, many of these companies tanked and took their customers' data with them. In better economic times, smaller storage firms might be able to look to the investment community for a financial lifeline, she says.

From Free to Free With Strings Attached

While some companies have decided to throw in the towel and close down unprofitable services, other businesses have taken a different tack. Kodak Gallery (originally called Ofoto) recently went from free to kind-of free in March.

Now, if you don't buy something from the site you'll get the boot. But you can keep your photos there by spending $5 with the site annually as long as you have less than 2GB worth of data stored on the service. If you have more than 2GB, you'll have to spend $20 annually. Kodak outlines the new terms of service on its site; note that it urges you to keep a copy of each image you upload to the site in a separate and secure place.

According to a letter from Victor Cho, Kodak Gallery's general manager, the service used to store billions of photos for 75 million members. "The quality storage service the Gallery provides is significant in terms of our business costs," Cho wrote in an open letter to customers.

"For Kodak it comes down to keeping the 5 million customers who are willing to pay for a service and recognizing that the other 70 million that pay nothing aren't worth as much," Park Associates' Scherf says. By keeping loyal customers over freeloaders, these companies increase the average revenue per user and reduce overhead costs.

That could be vital in a year like this one, in which Kodak reported to investors that it was on track to lose from $200 million to $400 million.

"Online storage is not like putting money in a bank," AW2.0's Williamson says. "You can't just assume data will be safe on the Internet until the day we die." He adds, "Users cannot absolve themselves from being 100 percent reliable for their own data."

Protect Your Data

Here are some suggestions to help you plan a smart backup strategy that includes online and offline options:

-- Find the Right Online Backup Service

-- Macworld's Storage News and Reviews

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