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.