T-Mobile is taking a huge financial hit in the fallout over the Sidekick data loss. But Microsoft, which bears at least part of the responsibility for the mistake, is paying the price with its reputation.

As reported earlier this week, the phone network had to admit that some users' data had been permanently lost due to a problem with a server run by Microsoft-owned company, Danger. The handset works by storing data such as contacts and appointments on a remote computer rather than on the phone itself.

Microsoft Recovers Lost Data

BBC news reports today that Microsoft has in fact recovered all data, but a minority are still affected out of 1 million subscribers. "The outage was caused by a system failure that created data loss in the core database and the back up," Microsoft Corporate VP Roz Ho wrote in an open letter.

Microsoft says a more resilient back-up process has been installed to safeguard against a repeat incident. (Source: bbc.co.uk)

Customers Offered Free Service, $100 Credit

The incident, however, has caused serious repercussions for T-Mobile as it attempts to quell customer anger.

As well as telling some customers they can cancel their contract before its scheduled end date, they have now offered those who've lost their data a $100 gift card in compensation, which can be used to pay phone bills or buy other products and services. This is on top of the month's free service the network is giving all Sidekick users in response to the week or so when nobody had access to their data. (Source: infoworld.com)

That may not be enough to satisfy everyone. At least two lawsuits have already been filed accusing T-Mobile of false advertising in claiming that users would always have access to their data. The lawsuits also accuse Microsoft of failing to act responsibly in handling the data. (Source: cnet.com)

Device Withdrawn From Sale

So hostile has been the response that T-Mobile has (for the time being) stopped selling the device. The Sidekick is currently listed as temporarily out of stock, though some are arguing that the incident has struck a devastating blow to its reputation and future sales.

Cloud Computing Future Questioned

Amidst this, Microsoft appears not to have suffered any financial damage. However, it seems certain that its relationship with T-Mobile will have taken a major knock. The software giant is also the target of some very bad publicity as critics question how on earth it failed to put in place adequate back-ups of the data. That could seriously damage the potential success of the firm's other "cloud computing" plans, such as web-only editions of Office. (Source: zdnet.com)