I've long believed these unlimited backup services rely on a Ponzi-like scheme to make money. Home internet connection uplinks are often the bottleneck preventing users from using excessive storage. As time goes on and bandwidth increases the profit margins on existing users goes down unless hardware costs decrease in equal or greater proportion. In order for the companies to remain profitable their growth has to keep up with the pace of storage use by existing users or hardware costs have to decrease in equal proportion. It was only a matter of time before some of these companies got bit by this model.<p>That said, the new pricing has huge margins built in. In researching the storage business for some ideas I had I found that the costs are significantly lower than most consumers realize. With 2TB drives under $100 now it would take months of a user maxing a 1MBit uplink to kill profits.
It will be interesting to see if other backup services will follow.<p>I've always wondered how they managed to keep prices so low. Considering the price of S3 (asuming their costs are similar to Amazon's) then only the storage costs of 100Gb is $14/month (excluding bandwidth). Even if they store it very efficiently (erasure coding, compression, de-duplication etc) it would be very hard to reach break even at $5/month.