Xdrive to Shutdown by End of Year

According to an article recently published in The New Your Times, AOL has decided to shut down the Xdrive online backup and file sharing service. According to an internal memo, AOL Executive Vice President Kevin Conroy said Xdrive and several other services will be "sunset" because they haven't gained enough popularity. AOL will try to sell Xdrive so that customers will be able to transition to another service, but if no buyer comes forward, then the service will be terminated at the end of the year.

Xdrive is a an online backup service targeted at consumers and home users. Apparently AOL found that selling dirt-cheap, and free online backup services wasn't profitable and they couldn't effectively leverage those Xdrive customers for advertising revenue. It makes you wonder about other online backup services such as Mozy and Carbonite. EMC has already made moves towards getting more revenue from their Mozy products by raising the prices for business users.

Providing services for free or dirt-cheap may be a great way to build up a customer base, but eventually the model has to be leveraged for profit in some way. I am sure that some of these online backup service providers have hopes of acquiring so many millions of customers that they can make a profit through economies of scale. The profit may come through advertising revenue, cross-selling other services to customer, or even selling the entire operation to someone willing to pay big-bucks for a customer base.

Watch out for the providers who offer unlimited backup for a low price. Regardless of what they say, those providers have some visions of leveraging their customers in some way, or selling off the business once they reach a certain size. When they do sell, the buyer will also have a plan to get those customers to pay. When AOL acquired Xdrive three years ago, you can bet that they thought they would be able to make healthy profit off of that customer base. And now that they can't, the're dumping it.

If you are more than just a casual computer user, you probably store important information and records on your computer. You want your backup data and archives to be around for the long term. The free and cheap services with unsustainable business models are likely to change, or change-hands, or go away. It's not easy to find a good online backup provider that you can depend on, but it is easy to spot the ones that you can't count on. If the deal seems too good to be true, then it probably is. You're probably better off choosing a service that charges a reasonable fee for defined amount of space. Anything free, dirt-cheap or unlimited should be a red-flag. And you can't just trust the big-names either, AOL, like other large companies has no problem trimming a line of business that is not producing enough profit. I think the best bet is to choose a company that has a primary focus on online data backup and charges a reasonable price for their service.