How an Online Backup Service can Compete With $5/Month Services
You see them everywhere – ads for companies like Mozy and Carbonite who offer to back up your personal computer for $5 a month, often offering “unlimited” storage space. So, how does a small Online Backup company compete? The answer is: Don’t.
The Online Backup Guide for Service Providers is a complete 196-page guide on starting and operating an Online Backup Service – the latest revision of Rob Cosgrove’s industry defining RBS Book originally published in 1987. The entire book is being published here, chapter by chapter.
As a small Online Backup Service Provider with fewer than 1,000 accounts, you most likely cannot afford to sell services to home users for $5 a month unless you are using my Mercury service; nor should you want to.
If you have 5,000 or more accounts, then of course the economy of scale works in your favor. With the right plan and the right marketing, you might be able to profitably approach $5/month and address the home market. But let’s just say for the sake of this discussion, you have fewer than 250 accounts.
250 accounts at $5/month would gross out at $1250 a month, or $15,000 a year. I don’t know about you, but for the trouble of giving 250 customers an adequate level of service while maintaining your equipment and trying to turn a profit, I am not at all interested in this business. I’m not even interested at $10/month, or $15/month.
However, at $19.99 a month I’m bringing in $60,000 a year and beginning to show a little interest. At $29.99 a month I’m making $90K; and at a very reasonable $89.99 a month for the kind of business-class service I can offer with RBackup, I am VERY entertained by a $270,000 a year from my loyal group of 250 small business customers.
Now, please understand that I am not trashing the $5/month services. In high enough numbers, or with Mercury, $5/month can make money.
In a “Fireside Chat” sponsored by Future Forward (FutureForward.com) on Nov 23 2008 David Friend, CEO of Carbonite (one of the $5/month services) said that he has more than 15 billion files in storage. He spends about $50 to acquire each new customer, and charges $49.95 per year for his service. He says he keeps each customer for 4.5 years, so, David is paying $50 for $225. Hey, I’ll do that all day long, no problem.
In a response to a blog posting asking how he knows how long he will keep a customer, David shows he’s smarter than I am by explaining the following:
“In a recurring revenue business like Carbonite (or Netflix, or any subscription business) you estimate the lifetime of a customer based on the percent of people who renew at the end of each year. If 80% of your customers renew after one year, your average customer will be with you for about 4.1 years. If the renewal rate is 90%, then the average customer will be with you for 7.6 years. And so on. You don’t have to wait until the end of four years to know what your average customer lifetime is. You know it after one year, assuming nothing changes in the future.”
David says he spends a million dollars a month (as of February 2010) on advertising. So, at $50 per customer, and discounting referrals, Carbonite must be signing up more than 22,000 customers a month, none of whom have dropped the service.
Last year David announced an IPO plan that should take place in 2011. He wants to raise even more money for advertising so he can become the “Symantec of Online Backup.” (His words, not mine.)
Now, David is a smart guy with many successes under his belt. He has been able to attract sixty seven million dollars in venture capital for Carbonite. So, not only does Dave believe in $5/month services, so do a lot of other smart people with a lot of money.
So sure, there’s profit in little customers – but only in large numbers. My advice is to leave them to Mozy and Carbonite, and move on to the far more lucrative small business market.
I know that backing up business computers isn’t just clicking a link, paying your money, and that’s that. Small businesses are a huge and lucrative part of the market. They need someone to design the proper backup strategy and protocol for their specific needs; then install and test the service, monitor it, test regularly, and change settings as businesses evolve.
Small businesses need software capable of being programmed and configured EXACTLY for their specific and individual needs. They need support for Exchange and SQL Server, for open files and Domain Controllers.
Five-dollar-a-month services simply can’t do that.
However, eighty-nine dollars a month buys a service based on RBackup software that has been in use by millions of businesses for more than two decades, designed specifically for businesses, which in the hands of a helpful Service Provider can be engineered on the spot to back up exactly how each customer needs to be backed up.
For $89/month you get a full service live expert who can help you properly manage your backups, software that backs up open files, Exchange, SQL Server, System State, Active Directory, and all your special business files. Your backups will be 100% secure, signed, and compliant.
Small businesses need, and are willing to pay for, expert advice, hands-on support, a phone call, and the feeling of safety and security knowing that there’s a live person they can call, who is personally and proactively looking after their business data 24/7.
If a business customer asks you to compare your service to those charging $5/month, you are welcome to recite the above five paragraphs.
The most profitable Online Backup Service providers I work with have grown by concentrating on one or two niche markets at a time. Learn about the kinds of data Dentists (for example) need to back up. How long do they need to keep the data? What regulations do they need to comply with?
Who does backups now? How are they done? Who makes decisions regarding business services like yours? Become an expert in backing up dental offices, then go out and back them up. When you have one customer, ask him for referrals. Then ask the referrals for referrals.
Even if you don’t ask for a referral, you can say, “I’d like to ask for a minute of your time to come show you how to come into compliance with HIPAA regarding your practice data, save money on computer backups, and even save your practice from disaster by backing up your data offsite over the Internet. I’ve installed such a system for Dr. Jones.”
The future looks very bright for Online Backup Services. I wouldn’t worry about Mozy or Carbonite or any of those $5/month services. With the right software, you have the wind in your sails and smooth seas if you sell your services on expertise, service, and market niche rather than on price.
We are looking at only the tip of the Online Backup iceberg. Because of the condition of the economy, businesses are looking for ways to scale back, and they are scared. Rather than buy that expensive backup device and software, and learn how to use it, they’ll sign up for a much less expensive Online Backup Service that lets them rest easily at night.
Show them how much they are paying to do inadequate and dangerous manual backups now, and how much they are risking. Calculate the monetary cost of manual backups using network down-time, tapes, salaries for someone to do backups, maintenance on the drive, etc. Tell them the dangers (and possible legalities) of taking unencrypted tapes out of the office and leaving them in the car. (see “Online Backup Service vs. In-House Backup”).
Forget the economy. It works in our favor. We are in a recession-friendly business, with an unlimited supply of willing customers who are now seeking us out to pay $89/month (and more) for a service that someone (not you) is spending millions of dollars a month to promote. How sweet is that? Our customers stay with us month after month, year after year, allowing us to ROI in far less time than other businesses that are as quick and inexpensive to start. I love this stuff.
There’s now more room than ever for companies entering the market, and our part of the market is not particularly price sensitive.
I can absolutely tell you, straight from the front lines, that the Online Backup market is not now, nor will it ever be, saturated. New computers are coming online too fast for us to keep up with them. Storage is moving online faster than I can produce new Online Backup Services. Niche markets are opening up quicker than I can produce software to fill them.
The pool of customers to draw from is getting larger and more diverse. The big guys are spending millions of dollars convincing our customers that Online Backup is a great solution, and as a result, more businesses than ever are signing up.
Five dollars a month? You don’t have time for it. Be sure to thank Mozy and Carbonite on your way to the bank.
Rob Cosgrove, CEO Remote Backup Systems
Rob Cosgrove is the President of Remote Backup Systems, founder of the Online Backup Industry, and a vocal advocate for maintaining the highest standards in Online Backup software. His latest book, the Online Backup Guide for Service Providers: How to Start and Operate an Online Backup Service, is available online now, on Amazon.com, and at bookstores.
Remote Backup Systems provides brandable, scalable software and solutions to MSPs and VARs enabling them to offer Online Backup Services.
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