XDrive Backup Service on the Auction Block

AOL has put a For Sale sign on the online backup service XDrive according to a report in TechCrunch. VP Kevin Conroy sent the following email to AOL staff:

Bluestring, Xdrive and AOL Pictures will be sunset. These consumer storage products haven’t gained sufficient traction in the marketplace or the monetization levels necessary to offset the high cost of their operation. We have found that building media management applications within the context of a social experience is a more rapid and effective way to grow the business. For example, today the Bebo audience is uploading over three million photos per day. To effectively grow the XDrive online storage business we would need to focus on subscription revenues vs. monetizing through advertising revenue, and this business model is not in strategic alignment with our company’s goals. We are exploring plans to migrate our users assets to ensure the best possible transition experience.

Having been connected to an online backup business myself, as an advisor to Servosity, I am absolutely sensitive to the lessons AOL has learned with XDrive.  The costs of storing and moving the files are too high to offer an opportunity to support it with ad sales alone.  While the costs are coming down, the business absolutely depends upon a subscription model to support itself.  Companies like Mozy can afford to offer a free version in order to get you to try the service, but their continued growth and path to potential profitability depend upon paying subscribers.