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Is there any problem of compessing the old files option avialiabe with the built-in cleanup Tool to get more free space in windows server???

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The trade-off with compression is that it's computationally expensive to decompress the data when it is read, which slows down accessing that data. It's up to you whether that's worth the extra disk space it will free up.

Keep in mind that the amount of space freed will vary wildly; simpler data such as text documents compresses far more efficiently than, say, pre-compressed data like jpg images or mp3s.

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I've had pretty good results with the cleanup utility. The company that I work for has some old servers in far away locations and no budget to upgrade them this year. By using the cleanup utility I've bought them some time.

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Be careful with that option, it has the very nasty habit of compressing system files; I've seen more than one mismanaged server end up with a compressed C:\Windows folder, and being unable to uncompress it due to files being in use (but then, how could they become compressed at all?!?).

There can be (and indeed there has been) endless debating about pros and cons of filesystem-level compression of data... but compressing system and program files is really something to avoid. And it saves up almost no space, by the way.

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