The Cloud Will No Longer Be Free

Is the “freemium” model for cloud services over? SugarSync has started to charge for online storage, and it won’t be the last to do so.

“Companies need to build a sustainable business model,” SugarSync vice president of marketing Alan d’Escragnolle said, explaining why SugarSync no longer has a free data storage plan.

Pay up or lose your data

d’Escragnolle, who is SugarSync’s vice president of marketing, told eWEEK that the company’s current free customers would be offered the chance to upgrade their accounts at a 75 percent discount. He also said that if SugarSync users choose not to upgrade their accounts, they will lose access to their data, on 8 February 2014.

d’Escragnolle said that while most of SugarSync’s business is already aimed at small businesses and users who buy professional-grade services, a consumer-focused free storage service wasn’t sustainable over the long run. “The freemium model works best when costs are low and there’s a high conversion rate to paid services,” he said. “But with storage it’s just the opposite.” d’Escragnolle said that storage can be very expensive.

Perhaps more telling, d’Escragnolle told eWEEK that he expects that a number of other freemium services will transition to a paid model in the near future. Freemium services are services in which a limited number of features are provided for free, with access to more advanced services available for a fee. These services then make money if they can entice users to upgrade their accounts.

SugarSync wants to make its user experience better, d’Escragnolle said, and to do that it can’t afford to give it away. “We need an awesome user experience,” he said.

Only big users pay?

The world of storage services abounds with companies that either give their services away for free or that migrate to a cost model only for very large storage needs. Some online data storage companies, such as Microsoft with its SkyDrive platform, provide their services for free as a way to attract customers. For example Microsoft uses SkyDrive to promote the sale of other Microsoft products such as Windows 8, which integrates with SkyDrive. But there are plenty of others that have few differentiators and even fewer ways to make a profit.

Of course this does not mean the complete end to free services. SugarSync still plans to offer 90 days of free storage for 5 GB of data as a free trial. Small businesses can sign up for 60 GB of free storage for 30 days. The idea is for potential customers to see if the service works for them. But as SugarSync’s 10 December email to customers explained, users will either have to find another place to store their files, upgrade to a paid account or lose access to their data.

The fact that this is happening should surprise no one. It was impossible know that it would be SugarSync that would take the plunge first, but it’s been clear for a while that it had to be someone. The reason is painfully clear — unless you have some way to monetise your free service it quickly becomes a money pit.

There are plenty of online companies that try to monetise their services by sending you advertising, or as is the case with Google, by gathering all of your information and selling it. But it’s hard to build a sustainable business model by taking either of those approaches with storage. A different means of monetisation was needed and the simplest way is to charge for the services. SugarSync is moving that direction now. But it’s a safe bet that others will follow.

Other services will follow storage

Ultimately, the same thing will likely happen with a lot of the other free services that float around the Internet these days. Those free apps for everyone’s smart phone aren’t really free, after all. You’re paying for them through either your attention or your product loyalty.

Free services are either going to slowly lose value, or they’re going to need to find a way to get financial support. You may have noticed that Wikipedia is now asking for donations to run something that was originally totally free, and funded by underlying charitable acts.

Of course the obvious question is if this really matters to you. Would you base the success or security of your business on a free service that could end at any time? Or would you pay for software and services that are engineered for your type of business and that give you full access to the features you really need?

My experience has been to not rely on freebees. Sure, it’s nice to get a business service that you don’t have to pay for, but over the long run if the service is something you need and that helps your business then it only make sense to pay for it.

Remember the saying that there’s no such thing as a free lunch and remember why it’s true. Those free products or services are ultimately delivered in exchange for something you have that whoever is providing the service wants, such as your personal information or for some other service you pay for. That mean it’s not free.

If you really need online storage, then it’s worth having online storage that is secure and reliable so your data will be there when you need it. Isn’t that worth paying for?

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Originally published on eWeek.