By Maggie Shiels
Technology reporter, BBC News, Silicon Valley
T-Mobile has made clear the server outage was not its fault
US carrier T-Mobile has halted sales of the Sidekick cellphone after a server caused customers to lose personal data.
Microsoft subsidiary Danger, which designed Sidekick's software and service, confirmed the disruption.
The issue is seen by industry experts as the largest failing for cloud computing in recent memory.
It is also being painted as a black eye for Microsoft which has pushed cloud or online services as a less expensive solution for enterprise data storage.
In addition, the timing hurts T-Mobile, the US's fourth-largest carrier, which is struggling to increase subscribers.
"This is the most spectacular loss of data on the web to date," Harry McCracken, editor of Technologizer.com told BBC News.
"There have been other examples, but always from small companies. For this to involve a big name like Microsoft is a major embarrassment and a big worry for consumers and Microsoft."
Service disruptions among Sidekick users have been going on for more than a week. It is believed the servers operated by Microsoft company Danger suffered a technical glitch that resulted in widespread data loss.
Microsoft has not provided an official cause for the server outage and said it is still being investigated.
The number of customers affected has not been released but Microsoft has warned that some Sidekick users "almost certainly" lost personal data for good.
T-Mobile's website shows sales of the Sidekick have been termporarily halted
It is understood that there are around one million Sidekick subscribers.
Sidekick's online service acts as a backup for contacts, photos, calendar appointments and other personal data stored on the mobile phone.
Microsoft has said the people most at risk of losing their data are those who removed their battery or allowed it to drain completely, an act that wipes out local copies of personal data.
One user, 17 year-old Kayla Haase a high school student from New Jersey told CNet.com "I had 411 contacts, now they are all gone. I had five e-mail accounts set up on the phone as well which are also gone, address book and all.
"I am extremely upset not only due to the fact I lost everything, but also because I pay 20 some dollars a month for THIS? It's ridiculous," wrote Ms Haase.
"This is a real wake-up call for consumers," said Mr McCracken.
"In the past we have always tended to assume that big companies are better at backing up our data than we are. While this is true in most cases, a lot of people are going to say you can't trust third parties, whether its Microsoft, Google, Apple or whoever."
'Cloud computing future'
While Microsoft and T-Mobile are expected to pay a heavy price for the fallout from this particular data loss, analysts see the bigger concern as that of confidence in cloud computing.
"Microsoft has been beating the drum for the idea of cloud computing where we all trust our stuff on some server up in Washington State," said industry analyst Will Strauss, president of Forward Concepts.
The data loss is seen as worrying for those switching to cloud computing.
"This is going to throw a little cold water on that idea for the moment. Microsoft is going to have to do some explaining and give good assurances that cloud computing is viable and that it won't lose data in the future, otherwise people won't trust it."
Microsoft said its cloud computing platforms such as Windows Azure and Office Web Apps are completely separate from that which Danger uses for its cloud services.
Technologizer's Mr McCracken said consumers will start to push for guarantees over the security of their data.
"I think we will see people be more demanding of companies and what they are doing to protect data in the same way they are over privacy issues."
In the short term Mr Strauss said both T-Mobile and Microsoft will have to distance themselves from the Sidekick affair.
"For T-Mobile, Sidekick is just one small group of cellphones that it offers and while it didn't screw up, the average subscriber probably doesn't understand that.
" In order to rescue the situation, they and Microsoft are going to have to throw Sidekick under the bus," said Mr Strauss.