[Editor’s note. Terence Pua is the latest entrepreneur to enter the online backup market. We think he’s crazy, because the industry is pretty crowded. We asked him to explain why he is doing this, and to provide an overview of the sector.]

As web services go, consumers are used to getting things free. From social networking to email to photo sharing, consumers just will not pay (with a few exceptions like SmugMug). But more importantly, there is generally a business model around these free services, mainly advertising.

However, trends suggest online backup won’t be free.

Other forms of storage, such as file sharing and email may be free, but not online backup. Why?

File storage (Word, Excel, etc.) as we use it today isn’t used for the biggest data files we have. More importantly, because such files are accessed frequently online, there is a chance to derive advertising revenue from such services (text ads, goog ads, banner ads, sponsorships, etc.). For example, when you share a photo with your family and friends, the photo sharing site can place ads next to the photos and thus monetize the service.

In a similar way, email is frequently accessed via the browser and thus can be given away for free. Furthermore, email storage use is incremental (i.e. you don’t immediately have 2GB worth of emails). It takes a long time to actually consume 2GB worth of emails. Lastly, compression of Word docs and emails “stretch” the use of storage, which brings me to the main topic: why online backup will never be free.

Online backup, unlike email, is not incremental in use. Actually, it is more likely the reverse: loads of files in the beginning and additional files over time.

While we backup things like Word docs and Excel sheets, it is the media files that consume most of our storage (music, tv shows, movies, photos). Because media files cannot be further compressed (without loss of quality), storage will be consumed 1:1 [there is a compression company working on this problem called Infima].

But it is the nature of backup that will lead to it not being free…we never view our backed up files online! For this last reason, it is near impossible to derive advertising revenue from online backup and thus it will never* be free.

Here are some companies working in this space:

1: Mozy – offers a free 2GB account and $4.95 per month for unlimited backups. Windows only.

2: Carbonite: similar to Mozy. 15 day free trial, $49.95 per year.

3: EVault: specializes in SMEs. 30 day trial, $85 for 5GB (not sure if monthly or yearly). One-time fee of $139. Recently acquired by Seagate.

4: BackJack: specializes in Mac backup. $17.50 for 2GB per month.
One-time activation fee of $25.

5: Sharpcast: focuses on backup and syncing. Based on their premise, this if my favorite of the bunch. Currently in alpha.

6: Omnidrive: similar to Sharpcast, focuses on sharing & syncing across computers and web. 1GB free.

There are other new players and the big guys all have plans to get into this space (Microsoft, Google, Symantec, Dell, AOL via XDrive).

The space is crowded but most companies seem to be focusing on consumer online backup. Our motivation is simple: we don’t like any of the current products out there.

In a recent blog post by Jawad Shuaib, founder of a geek social network, he says specialization is the key to today’s startup success. I agree. Here are “sub-niche” opportunities for entrepreneurs:

Audience/data-focused backup — focuses on the needs of different audiences/data (e.g. bloggers, SMEs, photos, etc.). SmugMug is in this category.

Platform-based backup — focuses on different platform and applications for backup (e.g. .mac for Ubuntu, Xserve backup, MySQL, etc.).

With Amazon S3 providing back-end storage to many online backup companies, there has never been a time where customers have so many choices. You no longer have a reason NOT to backup!

(Disclosure: Terence’s company, Xackup, will be launching its first product, Bandwagon.)

*As with Sean Connery, Never Say Never.