Driveway's Free Ride Is Over

Web-based storage will be discontinued; other services are also reassessing their business plans.

Liane Gouthro, special to PCWorld.com

Driveway's free online file storage is hitting the end of the road. The company is informing its subscribers that its service will be discontinued on Monday, March 5.

Driveway was launched in October 1999 as a free Web-based service, offering 25MB of virtual storage space. Newer features let you save documents to the virtual storage space directly from Microsoft Office, and let you share part or all of your stored files with others.

But those features were not enough to sustain the service. Driveway is no longer accepting new subscribers or allowing file uploads from existing customers. Instead, the company is referring all of its users to former competitor FreeDrive.com.

Driveway has company: A number of dot-coms offering online storage are switching from free to fee-based services, or are exploring other options altogether.

Driveway is still in business. According to a statement on its Web site, Driveway has "repositioned itself as a technology platform provider." But many of its employees have been laid off, according to that same statement. Remaining company executives did not return repeated calls seeking comment, but a personal visit to the company's San Francisco offices proved more fruitful.

Driving Away From Web Storage

Like other Web storage services, Driveway realized that advertising cannot support a free storage service, says Gina Rubatinno, a company spokesperson. "And paid storage was not happening quickly enough," she adds.

Driveway also hosted storage service for businesses, but decided that "the model of hosted storage was not economically viable," she says.

So on February 17, Driveway laid off employees in both its dot-com consumer storage services and its private-label hosted services, Rubatinno says.

On February 20, Driveway alerted members by e-mail that they had two weeks to migrate their files to FreeDrive, Rubatinno says. "That same day, we announced the company was repositioning itself as a technology platform provider."

What that means is somewhat unclear. Driveway plans to convert its system, which supported 9 million customers, to something "simpler and leaner," according to David Engberg, chief technology officer and "popular mechanic" at Driveway.

Basically, Driveway plans to sell to Internet service providers, financial services companies, and enterprises with mobile sales forces what Engberg terms "an appliance kind of thing," a portable version of its server technology that helps companies manage extranet and member-based Internet services and access. Details, including whether the product is hardware or software and what exactly it will do, are still undisclosed.

End of the Free Ride?

The service was popular, by all indications--by last August the company reported 6 million registered users. But the move to end free service is a switch now favored by many Web services. Some are exploring fee-based services only. So what does Driveway's demise mean for the rest of the online-storage market? Are the remaining free services destined for doom as well?

FreeDrive, which is picking up Driveway's customers at Driveway's request, says otherwise.

"We will always offer a free service," says Mike Ferconio, FreeDrive's vice president of corporate development.

But FreeDrive is considering adding a premium, fee-based service. Currently, members who want more than the 50MB of free storage can purchase additional space in a tiered pricing plan. A premium service would go beyond just adding storage space to offering special features for consumers.

"We're considering all avenues for consumers who want more than just the basics," Ferconio says, while declining to give any specifics. The company expects to announce new services in early April. Launched in June 1998, FreeDrive now has 13 million registered users.

But size can be a problem in the online-storage market, as IBackup.com learned. Launched as a free storage service in September 1999, the company switched to a paid-only service in July 2000.

"We learned that we could provide the best quality to our subscribers," says Rajesh Ramani, the company's chief technical officer. "Performance suffers when there are too many users. With the subscription model, we have a smaller user base, but they enjoy better performance."

IBackup learned the lesson earlier than many companies, but it is not likely to be the only one. And performance isn't the only reason for making the switch.

"The big question is, who pays the bills? The infrastructure is expensive," says Carl Howe, research director at Forrester Research.

Pushing Premiums

At least two of Driveway's former competitors agree, and are following suit in revamping their services.

My Docs Online will stop accepting new users for its free service in the second quarter of this year, according to Carol Smykowski, the company's vice president of marketing. Registered users will still be able to use the free service, she says.

The company is promoting its premium service instead, as is Xdrive.com.

"The free service was a good way to introduce people to what we had to offer, but it's not the wave of the future," says Karl Klessig, executive vice president of strategic development at Xdrive.

Xdrive does plan to discontinue its free service, but is encouraging customers to use its fee-based service, which adds features. "People who have an active need for this service really do want the extra features," Klessig says.

I-Drive, another of Driveway's former competitors, revamped its site last fall. It spruced up its capabilities and added enhanced services for a fee, but still maintains some free service.

There's no clear answer for one concern of users who have signed up for a service that goes bust: privacy. Driveway's message to its customers assures them that the personal information they provided will be deleted. But not everyone is convinced.

"Free services are worth every penny you pay for them," says Forrester's Howe. "For some companies, their only asset is their customers."

Cameron Crouch of PCWorld.com contributed to this report.