Two Markets for Online Backup Services: Personal and Business

It is important to be aware of the differences between the Personal Online Backup market and its Business counterpart. They have very different needs, and different prices.
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.
 

Personal Online Backup

Excluding the “free” Online Backup Services, the average charge for Personal Online Backup service is, at the time of this writing, in a range from $4.95 per month to $39 per month plus storage fees that can range from $0.15 per GB to $1.00 per GB.

There is plenty of business for services charging twice this much as those $5/month services in the Personal space, if you compete properly.

The average customer for Personal Online Backup Services knows how to turn on his computer and run a few applications. He knows how to get online and check email. He can write and print a document, and edit it later. Many know how to import pictures from their digital cameras, and they can sync their iPod with iTunes.

Depending on who you ask, most personal computer users use PC (Windows) computers. Statistics vary, but overall indicate that Macs are less than 15% of the personal computer market. Macs represent a much lower percentage in the Business computer market.

Most personal Online Backup software supports 99.9% of the market, PCs and Macs. Unless you plan to sell into a very specific market that uses Linux, forget about Linux. (See the chapter, “Don’t be Blinded by Linux”)
Personal Online Backup software might need to back up documents, photographs, Quicken files, music and video files, and similar personal files. It does not need to back up MS Exchange, SQL Server, Active Directory, or other business-type files.

You should also consider your target market. For example, one of my largest customers targets college students using laptops. His statistics show that almost half of his customers use Macs.

Personal Online Backup Services usually address non-networked computers. There are higher numbers of laptops and home computers. Although most Online Backup Services limit their use to Personal computers in their Terms of Service, many businesses use these cheaper services to back up their workstations.

Personal Online Backup Services charge far less than Business services. Mozy and Carbonite are the most well known names in the USA. They sell “Unlimited backups for [about] $5 per month” (see the chapter, “Unlimited Backups for $5 a Month?”)

I do not recommend attempting to compete with Mozy and Carbonite on price alone. There is plenty of business for services charging twice this much as those $5/month services in the Personal space, if you compete properly.

Personal backup services have to sell services for cheaper than Business services. They also have a harder time selling the service, there’s more competition, and they have higher tech support costs. Customers are apathetic and for the most part ignorant and impatient. You will get a lot of calls about computer problems that aren’t the fault of your software or service.

You will be asked to adjust firewalls and modems – and you may have to do so if you want to keep the account. Customers don’t realize the value of their data as much as Business customers do, so they tend to jump to other Service Providers more often. They have more problems with their credit cards than businesses do, so you will spend more time following up with them when a card expires or is declined for a monthly recurring billing.

Now that I’ve convinced you NOT to go into the personal Online Backup segment of the market, let me tell you that it is currently the fastest growing segment, and might be worth your time if you properly account for these little frustrations I’ve just told you about.

My company has programs that can help you get into this market very quickly. We offer two programs for hosting our Mercury service, which was designed for the home market. In both programs we host and maintain the Mercury Server. You can find more information on Mercury Virtual Hosting at the following link:

www.remote-backup.com/vhosting.htm

The Mercury Affiliate Program also hosts Mercury under a different pricing structure, and although it gives you less control over your service and less profit than Virtual Hosting, it has other features you might need like end user tech support, and automatic credit card billing.

www.varbackup.com/mybackupspace/yourowncompany.htm

I designed the Mercury Online Backup Platform to compete directly with Mozy and Carbonite, so you can have something to offer those who need a strictly personal service like theirs that operates on Windows and Mac computers. There’s more on the Mercury Platform at the following URL:

http://mercurybackup.com

Unfortunately, the price for Personal Online Backup was set (I suggest unsustainably) low when Mozy and Carbonite came on the market with what they called “Unlimited” backups for about $5 a month; and they’ve done a pretty good job of advertising, so the public is becoming used to that price and level of service. There are a few others who are trying to match that service, but are not as well known.

Mozy halted their Unlimited service in February 2011.

Nobody knows how long the $5/month price point will stick in the long run. Carbonite, the largest one left with an Unlimited plan, has deep pockets and can afford to lose money for quite some time.

In the mean time, it is my advice that you offer a Personal service at a higher price than $5/month and along with it, a higher level of service. For example, my own Mercury platform can do the same $5/month level of service as Carbonite, but it can also help locate a stolen computer, remotely erase sensitive data, and record pictures and movies (with sound) of the thief, sending all this data silently to the Mercury Server where you can view it in your online user console.

There are Service Providers selling my Mercury service at $19.95 per month based solely on its security functionality. Corporations with a lot of traveling laptops love it for asset control.

You might also offer better tech support, or remote installation. You already have an advantage over Mozy and Carbonite because you are local to your customers. They may even know you personally, or know of your computer store or other business.

Some computer manufacturers and repair shops pre-install Online Backup software with free trial accounts on every computer that goes out the door. At the end of the trial period, customers have the option to sign up and pay for service online.

Selling Personal Online Backup at a lower price than you’d like might mean you have to cut some corners you wouldn’t normally cut. Here are some things you might want to do to save some money and increase your profits for your Personal customers, without overtly affecting your service level.

Automate Tech Support – No direct telephone access to a support tech. Use a self-service online ticketing system like the Kayako help desk. (www.kayako.com). At $5/month, just one support call can kill your profit for an account. Use an online ticketing system to offset the time for handling support to your own schedule.

Charge for Tech Support – Hey, the $5/month boys do it. If customers want immediate access to a live tech, charge them $20.

Offer a Tech Support Plan – Offer unlimited telephone support for $99/year.

Use Less Expensive Equipment – OK, that was a bad way to say that, wasn’t it? Still, there are many inexpensive drive arrays that use 1 and 2 TB SATA drives. How about 67 terabytes for only $7,867? The Online Backup company BackBlaze ($5/month Unlimited) uses BackBlaze Storage Pods (their own invention) to keep their costs down. Each Pod stores 67 terabytes and costs only $7,867 to build, and they have given away the plans to build one. That’s right – you can build it yourself. Here are the plans:

blog.backblaze.com/2009/09/01/petabytes-on-a-budget-how-to-build-cheap-cloud-storage/

Bill in Advance for a Year – Carbonite does this. It’s a good way to increase profits by having the use of more money for more time, and cutting the costs associated with monthly recurring billing, which can be as high as $0.25 per transaction. This will also cut down on costs associated with recovering from bad and out of date credit cards by limiting the possibility of problems from twelve times a year to one.

Forget Expensive Data Centers – At $5/month you can’t afford mirrored data centers on earthquake-proof springs. The big boys don’t have those, either. Save as much money on hosting as possible. Some customers will ask where their data are being stored, so make sure you don’t say, “My granny’s basement.”

Charge by Native File Size, not Compressed or De-Duped – Even though virtually all modern Online Backup software compresses and deduplicates files, thereby saving a lot of storage space on your servers, I strongly recommend that you charge customers based on the native size (pre-compression size) of their files. Customers don’t care about compression. It is difficult to explain, and impossible to predict. They DO know, however, how big their files are on their computer. So charge them that way. (See the chapter called “When 30GB isn’t 30GB”)

Limit Backups by File Type and Size – Most Personal Online Backup services limit the types of files they will back up, and some limit files to two or four GB. All of my software has the ability to do this. As the Service Provider, you can decide which files are excluded from backups, and believe me you will need to. If left up to their own devices, customers will simply back up everything on all of their hard drives. Most Service Providers exclude System files and folders, hidden files and folders, and files that belong to applications, like those ending in EXE, DLL, SYS, and OCX. These can be reloaded from their original CDs, they never change, and they don’t need to be backed up. Many services exclude compressed files like ZIP, RAR, and CAB. Both Mercury and RBackup come with built-in default exclusion lists. The files in these lists never even show up on the users’ file selection interface.

Limit Backups by Location – Carbonite won’t back up USB drives. Other Online Backup software won’t back up network drives. Limiting backups to the hard drive(s) actually installed inside the customer’s computer will limit your storage costs, and is a very common practice for Personal accounts. Both RBackup and Mercury have the ability to do this, and I strongly advise it for Personal accounts.

Don’t Back Up Music or Movies – This isn’t as much advise as it is a suggestion. I’m not saying it’s a good idea. Some Service Providers exclude movies and music. Some exclude the entire iTunes folder structure. Their reasoning is that these file sets are often HUGE, they don’t compress very well, and they can be re-downloaded anyway, so there’s no need to back them up. On the other hand, I’ve seen tech support cases where customers almost cried because they lost their entire music collection. You decide.

Include a Fair Use Policy – You will most certainly have a Terms and Conditions statement to which you will require your users to agree before installing or downloading your software. This should include a Fair Use Policy that allows you the right to kick a customer off your service for, basically, any reason you want. The Unlimited $5/month boys have Fair Use Policies that allow them to suspend accounts if users (I am paraphrasing here) back up more data than the “average” user. Fair Use Policies keep your users from abusing your bandwidth and storage space. (See “Terms and Conditions” and also “Unlimited Backups for $5/month?”)

Business Online Backup

The average charge for Business Online Backup service is, at the time of this writing, in a range from $89 per month to $350 per month plus storage fees that can range from $0.50 per GB to $10 per GB.

The average customer for Business Online Backup services is harder to characterize than Personal users. Some of them know how to turn on their computers and run a few applications, get online and check email, write and print a document. Others might be System Administrators who can make servers roll over and beg.

Most business computer users use PC (Windows) computers as workstations and servers. By some accounts Linux represents about 15% of the Server market, and far less of the workstation market. (See “Don’t be Blinded by Linux”)

Business customers need to back up documents, accounting files, spreadsheets, presentations, and similar business files. On their Servers, they need to back up MS Exchange, SQL Server, Active Directory, System State, Sharepoint, open files and other business-type files.

Business Online Backup Services usually serve several networked computers in one company. There is a high percentage of workstations and servers and, except in special cases, few laptops.

Business backup services sell for far more than personal services and they are more profitable. You will work with customers who are easier to get along with, who you can see during the business day, and who are usually far more computer savvy than customers of personal backup services.

Business customers realize the value of their data, and are far more loyal than Personal customers. They will pay more for a higher level of service, and you will have fewer problems with billing and collections, although you might have to give them Net 30 terms.

Business customers are more demanding than personal customers. Be prepared to answer tech support calls as a standard part of your service. Be ready to travel to the customers’ site if needed to do a first full backup. This is a lot more trouble, but of course, unlike with personal customers, you can charge for it.

Business customers will want more oversight of their service than personal customers do. They may want a daily report of their backups. They may want to have direct control over the Client software and the service offered to each workstation, laptop or Server.

They are far more concerned about security and privacy, so they will ask more questions. Many businesses are required to conform to government regulations, so they may have special requirements for the level and type of encryption used, and the location of the backup server. They may want to restrict who has physical access to the backup server.

Do not expect a business customer to let you roam around his in-house data center unescorted.

All this depends on the size of the business. Most of my Service Providers who service businesses concentrate on small businesses. The perfect customer is a growing small business with one or more Windows servers and 10 or more workstations, who isn’t quite big enough yet to need an in-house IT person. They will outsource virtually all of their IT work, including backups – and most will be very happy to see you because they haven’t done a backup in more than three years with that old dusty DAT-80 tape unit that nobody remembers how to use.

When you develop your marketing lists, you should concentrate on businesses with fewer than twenty employees and/or less than $5M in sales. That should target companies just barely too small to have an in-house IT person.
While you might want to cut expenses associated with your personal service, you can charge more for your business service, so you may not need to cut corners. Business customers have a different set of expectations for their service, and they don’t mind paying to get them.

Some of the things Business customers might request include:

Server Backup – Business customers expect their Online Backup Service to be able to back up Windows Servers, and the special databases that run on them. This includes MS Exchange, SQL Server, Active Directory, System State, and open files.

Multiple Versioning – Businesses require that their Online Backup service keep multiple versions of their files at different points during their development so they will be able to roll them back to a point in time. The bookkeeper might want last month’s copy of a spreadsheet. A virus might have infected the network on June 8, and a customer needs virus-free copies of his files from before then.

Flexible File Retention Policy – Some files need to be kept for up to ten years, while others can be deleted after ninety days. Some don’t require deletion after a specific age, but should be deleted after a number of versions. Business customers need a service that offers a flexible file retention policy that can be applied to an unlimited number of groups of files called “Backup Sets.”

Regulatory Compliance – Some business customers are required to comply with government regulations that govern privacy, disclosure, and legal discovery. For example, Healthcare Providers are required to conform to HIPAA (see the chapter on HIPAA). Others are required to comply with Sarbanes-Oxley (SOX), Gramm-Leach-Bliley (GLB) and more. Different countries have different regulations. Since Online Backup Services handle the data covered by these regulations, they must (if not comply themselves) at least refrain from bringing customers out of compliance.

Centralized Management – Larger business customers might have an IT department, or at least one IT person on staff, whose job it is to manage the computers. He might also want to manage the Online Backups. So, it some business customers want a centralized management console that can control and monitor all the backups for the company.

Fully Managed Service – Business customers demand a much higher level of service than Personal customers. They may expect to be able to phone in a support request and get immediate help, sometimes in the form of a personal visit by a technician. They will want their backups monitored proactively, and they will expect far more functionality and flexibility in their Service than Personal users do.

Redundancy – Some business customers want multiple copies of their backed-up data at different locations. This requirement might be satisfied by having two or more mirrored data centers, or by keeping a local copy of the latest version of backed up data on site with the business.
Accepted Encryption Technology – Blowfish is a great encryption technology. It is fast and very secure – up to 448 bits. However, it is not government-approved. Some businesses (like banks and brokerages) require the use of a “standard” encryption technology like DES or AES. RBackup supports six “standard” encryption technologies as well as Blowfish.

High Security Data Centers – Business customers are more conscious of the features of the Online Backup data center than personal customers are. They may require redundant Internet connections, biometric security, armed guards, backup generators, backup air conditioning, special fire suppression, redundant alarm systems, earthquake-proof buildings, and video monitoring.

Bulk Loading – Many business customers have large amounts of data that would make the first backup too big to go over the Internet. Of course, subsequent backups are smaller. But that first one can be huge. These customers will want to send their first backup on a portable USB drive rather than online. RBackup fully supports Bulk Loading.

Bulk Restore – Like Bulk Loading, full restores (while rarely needed) might take too long to do over the Internet. So, there should be a way to restore data from a portable USB drive instead. RBackup supports Bulk Restore.

 

Rob Cosgrove

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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About The Author

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Rob Cosgrove / http://remote-backup.com

Rob Cosgrove is President of Remote Backup Systems, developers of the fully brandable RBackup Online Backup software platform, powering more than 9,500 Service Providers, MSPs and VARs wordwide since 1987. He is the founder of the Online Backup industry and author of several books, the most recent, "The Online Backup Guide for Service Providers", available at Amazon.com and bookstores. http://remote-backup.com