But what they did was close this guy's account and delete his backups without warning. It seems they then did the same to his friend for shooting his mouth off on twitter. That's beyond "handled poorly", that's unprofessional and unethical.
Having said that, if you choose to run a low cost hosting service, you should know that your customers are going to be greedy entitled bitches, and you should deal with that fact in a professional matter. Otherwise, just get into some other line of business.
If you commit to provide a service, whether you're charging $1 or $100k per month, there are some minimum standards of behavior you should hold yourself to. This isn't "you get what you pay for" because the host went down. Maliciously deleting backups that you're supposedly responsible for, over a twitter slapfight, is unethical. No matter what.
Forget about how much you think it costs to host your backups. Think about how much you backups mean to you. What would happen if you didn't have access to your backups?
These aren't customers with an "odd mindset", these are people that believe that they are an essential part of your product, usually in the form of advertiser fodder, and therefor you owe them. The assumption that you somehow profit from offering something for free is not a strange one, hence there is nothing pathological about these people demanding service and respect in the same way paying customers do.
However, paying customers know more or less exactly what to expect, because they can relate it to the amount of $$$ they pay. Customers of "free" services have no idea how much they are worth, so they tend to "negotiate" by aiming high. Yes, this is unpleasant, but it's very naive to be surprised about it, and a little disingenuous to be offended by it.
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Granted, not many.
Also, the principle "you're not the customer, you're the product", while well-known to you cynical kids today, had not yet really been invented in 1999.
