Earlier this week Microsoft announced that it will no longer offer unlimited storage space in OneDrive for Office 365 users due to it being abused. “Since we started to roll out unlimited cloud storage to Office 365 consumer subscribers, a small number of users backed up numerous PCs and stored entire movie collections and DVR recordings,” Microsoft explained in a blog post.

Unsurprisingly, the move to shrink the cloud has become a matter of controversy, while the back-step has also led critics to ask what Microsoft was thinking in the first place. VentureBeat summarized what it called backpedaling by saying, “This is where you have to wonder whether Microsoft really is making a decision based on some users uploading 75TB of files, or if the company is realizing its storage offerings were ‘too good.’ We’re betting the company simply decided the cost outweighed the benefit.”

ZDNet asked, “If you advertise ‘unlimited’ cloud storage, perhaps you should expect that some people will take you at your word and move large collections to the storage space you so generously offered?”

These criticisms are every bit deserved; what was Microsoft thinking when it offered an indefinitely infinite cloud? Surely someone working within the tech giant’s office space might have pondered the possibility of customers taking advantage of unlimited storage.

What Microsoft’s mistake means

Israeli-US based harmon.ie, a company that develops mobile collaboration tools for Microsoft services in the enterprise sector, recently talked to SiliconANGLE about what it calls a “misstep” for Microsoft.

“Microsoft made a rookie mistake,” said David Lavenda, VP of Product Strategy at harmon.ie, “They are new to the cloud market, and it appears they didn’t fully understand the economics of the cloud. Storage may be cheap, but it’s not free – and never will be. Servers and bandwidth still cost money, even if there are economies of scale.”

The bottom line, said Lavenda, is that while Microsoft’s new offerings are still competitive, it may be beside the point. “The likely fallout of this change will be the perception that Microsoft is not a seasoned cloud player and may change future terms down the line – making the overall offering less attractive,” he said, adding, “The issue is perception. And in today’s fickle world where consumers swap out suppliers on a dime, perception is indeed reality.”

Lavenda doesn’t deny that Microsoft’s new package that includes 1TB of storage for Office 365 Home, Personal, or University subscribers isn’t still a good choice at the side of Google and Dropbox offerings, only that what can only be perceived as a downgrade might prove to be for Microsoft a, “Setback in the cutthroat competitive market for becoming the consumer’s cloud platform of choice.”

Will Microsoft be able to recover? “I wouldn’t count them out just yet,” Lavenda explained, “OneDrive is not as popular as Google Drive so trying to compete head to head on storage doesn’t make sense.” The advantage, he says, is that Microsoft has Office and most business users still prefer Word, Excel, Exchange and PowerPoint to Google Apps. “Microsoft would be wise to ride the Office advantage for its cloud bundle. It is still way too early to declare a winner for cloud supremacy,” he concludes.

Photo credit: Herman Yung via Flickr