Over the weekend T-Mobile made it official: Sidekick mobile phone users have irretrievably lost their data stored on Microsoft servers. It seems that Hitachti was hired to do a SAN upgrade and, stunningly, Microsoft did not back up their servers. Something went wrong with the upgrade, and now there is no way to reclaim any user data that was stored only on Microsoft's servers (details can be found here
This is an amazing screw-up that could have wide-ranging implications over the next several months.
The most immediate impact is to the reputation of T-Mobile and Microsoft. T-Mobile is blaming Microsoft but they are really hurting themselves by offering customers a measly $20 off a data plan - not the total bill or voice plan, the data plan. This is almost worse than offering nothing at all, as the amount of compensation is not commiserate with the damage done to the customer, and by making it specific to the data plan T-Mobile is reminding customers of the error. Did anyone at T-mobile think of the obvious customer complaint: "You lost ALL my data and you are offering me a $20 discount to give you the chance to lose ALL my data again?" Even if Microsoft (or Hitatchi or anyone but T-Mobile) is completely to blame, T-Mobile may come off looking like the bad guy in consumer eyes.
This could not have happened at a worse possible time for Microsoft. Microsoft's current smart phone platform, Windows Mobile 6.5, is almost certainly dead and there were already rumors that the company's "secret" smart phone project (code named "Pink") was failing and might be killed outright. This would leave Microsoft with no product in one of the fastest and most innovate tech sectors, mobile computing.
Even worse for Microsoft as far as timing goes is the upcoming release of its cloud computing initiative, "Azure". Cloud computing is the other hot tech sector, with Microsoft, Google, Amazon (and maybe Apple) and others positioning themselves to host consumer data on their servers in the cloud. It makes it that much harder for Microsoft to sell its cloud computing initiative if the perception is that Microsoft bears responsibility for the SideKick data loss.
And what of cloud computing in general? The barriers to acceptance have been the three fears: of privacy concerns, of data lock-in, and of data loss. It remains to be seen if the Sidekick fiasco is seen as a mobile phone issue, a Microsoft issue, or cloud computing issue. In any case. things don't line up well for Microsoft here either. The other cloud computing players will want to frame this is as you-can't-trust-Microsoft-with-your-data, not you-can't-trust-cloud-computing. But Microsoft can't respond with talk about the dangers of cloud computing when it has bet the farm on cloud computing itself. It's best bet might be to throw the recently acquired subsidiary Danger Computing (the makers of the Sidekick and the internal part of Microsoft directly involved in the data loss) to the wolves by canceling "Pink" and dissolving Danger.
What about the iPhone and Apple's mobile and cloud strategy?
The iPhone seems much less vulnerable to catastrophic data loss. To the best of my knowledge, most if not all iPhone data is synchronized between the iPhone and Apple's MobileMe servers, meaning iPhone users are not completely dependent on Apple's servers. A distinction should be made between MobileMe outages which cause users to lose access to their email, and actual data loss. Look inside your iTunes folders and you can find copies of your Mobile Apps, Calendar entries are stored in iCal, and so on.
Much less clear is how this plays out for Apple's cloud strategy for the simple fact that Apple doesn't seem to have one (at least not a public one). Apple is building a large server farm in North Carolina, which has generated rumors that Apple will make some sort of move in this direction, like hosting your iTunes content in the cloud and making that accessible from many different Apple devices. Since Apple got burned by the premature introduction of MobileMe it has been all quite on the cloud front for Apple - the feeble beta of iWork just shows how cautious Apple is in this regard.
The best reaction for Apple to the SideKick/Microsoft meltdown is no reaction at all. As they say in politics, when your opponent is self-destructing, just stay out of the way.