David Friend, CEO of Boston-based online backup company Carbonite, says the rumored acquisition of rival Mozy by Hopkinton storage giant EMC (NYSE: EMC) is great news for his company, too.
Both companies launched in 2005 with bankrolls of around $2 million. Both provide software that automatically encrypts and copies the information on users’ hard drives to servers on the Internet. And now Mozy’s sale to EMC will fetch a cool $76 million, according to an unconfirmed report in technology blog TechCrunch.
The sale “puts a real peg in the ground and shows that somebody is willing to pay real money for one of these companies,” says Friend. “That’s going to make the money-raising task much simpler for us.” Mozy and Carbonite are often mentioned together as the two examples of so-called “second generation” online backup services—those designed and launched within the last couple of years, when the economics of broadband connections and hard drives have made it feasible to offer large amounts of storage for only a few dollars a month. Now that Mozy is off the table, there will be less competition for investment capital, Friend says.
And that could be important for Carbonite. While online backup services offer a low-cost, low-maintenance alternative to storing data on an external hard drive, consumer awareness of the category has been growing only gradually, and Carbonite has been spending a million dollars a month lately on marketing (money coming out of its $15 million Series B round, which closed in May). “We want to be to backup what Norton is to antivirus, and that’s the kind of money those guys had to spend at the beginning too,” Friend says.
Just as significantly, EMC’s absorption of Mozy might ultimately leave a bigger chunk of the consumer market to Carbonite. “Mozy is more of a ‘techie’ product than Carbonite, which we have tried to make as ‘feature free’ as possible,” says Friend. “They have been pushing into the enterprise market—they announced a big sale to GE a couple of months ago—so [the rumored acquisition] makes sense, because EMC has thousands of enterprise customers. But the consumer side is a big investment right now, and I seriously doubt that EMC will want to sustain the kind of losses that our VCs are expecting us to incur for marketing. So the sale of Mozy, in a way, reduces the threat from our most able competitor.”
At $76 million, EMC would be lavishly overpaying for Mozy, in the view of some observers, such as Om Malik of GigaOm. But Friend is so sure of the future of the online backup market that he doesn’t bat an eye at that price. “When we exit I’d like to see an extra zero on the end of that number,” Friend says. “We sold our last company for $200 million, so $76 million would be a big disappointment for our investors.” (Friend is referring to FaxNet, a Boston-based Internet fax service for corporations, which he sold to Critical Path in 1999.)
Friend says Carbonite’s strategic advantage—and the factor that differentiates the second-generation backup companies from older rivals such as X Drive—is its data storage system, which was designed to store data more efficiently and to be scaled up at low cost. “Ten years ago, the thought of selling 15 gigabytes of backup for $3.75 a month was insane—-everybody would have thought you were nuts. But then Mozy came in with a very efficient way to utilize their disk storage, and we came up with a different but equally effective one, and both products are designed to scale to large numbers of users. The old guys started out with the idea that they were going to sell 10,000 subscriptions for $100 a month. We’re going to sell a million for $4 a month.”
Given that big Internet companies such as Microsoft, Google, and Yahoo might eventually want to provide online backup services as part of their consumer strategies—but might want to buy such a service rather than build it themselves, as EMC has apparently decided to do—Carbonite could end up looking like an attractive purchase, even at a price well north of $76 million. Maybe with an extra zero on the end.
