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Maybe. It was a pretty paltry free offering, to be fair, only 2Gb. I think that you identify the potential pitfall - people come in for the free cloud storage, find out just how little 2Gb really is, and end up paying for additional storage since they already have an account with the company. Now those customers wanting to sample the wares before committing cold, hard cash will be unable to do so. What incentive do potential new customers have to try Sugarscync? If they are going to do this route, I hope for their sake that they have really put a lot of thought into how they can make people believe Sugarsync is so good that they should choose it instead of trying the free "sample" offered by pretty much every other cloud storage provider.
Clearly it was a mistake in the past. But whether it is a mistake now is hard to tell. Usually it means they cannot afford the cash burn rate of free services.
We've seen many companies doing this kind of wrong things: offering customers something that is not sustainable, then hike the price or close the business. In either case, their customers get screwed up. Even Google did the same thing with Google Apps for business.
This compares to DriveHQ, in the past 10 years, we have never raised our prices. In fact, our prices keep going down. Our customers benefit more and more as they grow. And we offer our basic service for free, forever.
I joined DriveHQ in 2011. Founded in 2003, DriveHQ is the first cloud IT solution provider with over 2 million registered users. For business service, you will find DriveHQ service a lot better and cheaper at only $6/user/year.