Microsoft announced yesterday that they were "throwing in the towel" on their Live OneCare service which included a backup service. According to the web site, "data are continuously protected—automatically backed up on-schedule to a single location I specify."

This announcement comes on the heels of AOL shuttering its xDrive backup service and several smaller competitors biting the dust. Meanwhile Carbonite continues to grow at double-digit month-over-month rates. And we think at least one of our "pure play" competitors is also enjoying substantial growth. So what's going on here?

I think it's a matter of focus. Some vendors seem to think that backing up your PC isn't enough. You ought to throw in anti-virus, firewall, syncing PCs and mobile devices, sharing photos with friends and family, and many other "features." Most of these products seem to be dead or on life support.

Everyone knows they should be backing up their PCs. It's a big and immediate problem. Most of these other features are things that the user already has or are simply a "nice to have" for some subset of users (often younger users who tend to not want to pay for such things). When you have all these other features to sell, it dilutes the important message that you need to be backing up your computer. And because most of them have so many features to support, they don't do a particularly good job at any of them. We're content just to do a spectacularly good job at backup (if I do say so myself). In five years, I believe half the world's PCs will be backing up online. If we want to continue to be number one in this market, we really have to focus and do a better job than anyone else.

I think Microsoft has found that their expertise at writing software does not automatically translate into an ability to run a rock-solid backup service. When we were out raising our first rounds of venture capital a couple of years ago, I was told repeatedly by investors that Microsoft was going to enter this market and crush us. What has been demonstrated time and again is that if you focus on doing one job exceptionally well and if you're motivated to the point where you’re life depends on it, no big corporation can keep you down.

— Dave
CEO, Carbonite

Carbonite recently announced the completion of our Series C financing and a major deal with Lenovo. These two announcements generated some great press. But, there are two articles in particular that I wanted to share with you.

In an article that appeared in Mass High Tech, Christopher Calnan reported:

“

Online backup provider Carbonite Inc. recently closed its second bundling deal with a major personal computer manufacturer and followed that up last week by closing a Series C round of financing.

Boston-based Carbonite closed an agreement to provide free four-month online backup service subscriptions for the Ideapad line of desktop and laptop computers made by Hong Kong-based Lenovo Group Ltd., CEO David Friend said.

In June, Carbonite reached a similar agreement with Netherlands-based Packard Bell BV for the PC maker to bundle subscriptions for purchasers of Packard Bell desktop and notepad computers in Europe. Lenovo officials declined to confirm the deal with Carbonite.

Although Friend would not disclose the specifics of the Series C financing, he expects it to be enough to fuel Carbonite before it completes an initial public offering.

"That's the next step," Friend said. "The projections show that it will be the last cash we'll need. (Carbonite is) the type of company that should go public."

Shortly after, Xconomy reporter, Wade Roush published an article entitled "Carbonite Puts Its Online Backup Software on Lenovo Computers, Raises $20 Million" in which he notes:

“

Last Wednesday, the Mozy division of Hopkinton, MA-based EMC (NYSE: EMC) announced that its software will power an online backup service available to buyers of Thinkpad SL notebook computers, the newest line of business laptops from Lenovo. Not to be outdone, Boston-based Carbonite is expected to announce soon that it has formed an even broader partnership with the Chinese computer maker: All Lenovo IdeaPad and IdeaCentre computers—the company’s lines of home and home-office laptops and desktops, respectively—will now come with Carbonite's online backup software pre-installed.

At the same time, Carbonite is about to announce formally that it has closed a $20 million financing round, the third since the company's founding in 2005. (It raised $2.5 million in Series A funding in February, 2006, and completed a $15 million Series B round in May, 2007.)

Both of these articles attest to the fact that online backup is becoming mainstream. At some point in the future, we hope online backup is as common, and as top-of-mind, as anti-virus software is today.

— Alison

— Dave
CEO, Carbonite

I was reading a blog the other day from noted Silicon Valley blogger Om Malik, and I wanted to share my thoughts on it: I think Om is absolutely right about the "online storage" market – most of the attempts to support such services with advertising have failed miserably and it's amazing to me to that people keep trying. Only Google, Yahoo, or other portals have much chance of being successful with a free ad-supported collaboration service. Few people are willing to pay for these services given the wide range of free options already available.

It seems to me that online storage is a solution looking for a problem. What exactly is the problem? Data protection? Photo Sharing? Remote access? Publishing and file sharing? Syncing multiple devices? The more features you throw into these products, the worse they seem to sell.

Most of the products that purport to "do everything" lack focus, are hard to market, and have not been notable financial successes. Before I started Carbonite, I was looking to buy an online backup service for my daughter who had already had two hard drive crashes. I remember looking at xDrive and saying to myself "This product does so many things, I can't figure out what it's for." The marketing message was hopeless!

Pure, simple, set-and-forget online backup is thriving, thankfully. Hundreds of thousands of people now pay $50 per year to back up their PCs with Carbonite. We've enjoyed 26 consecutive months of double-digit month-over-month revenue growth. And investors and corporations are paying good money for companies in this space – Mozy sold out to EMC for $63M and Swapdrive sold out to Symantec for $123M, to name a couple. Online backup (as opposed to storage) is a great subscription business. You pay your money and your worries go away. Simple.

Amazon is the only online storage company that has really found a market, and that market, as Om points out, is all the little companies that are trying to put lipstick on the service and sell it to the next guy. And Amazon charges real money for their service.

And while I agree that there is no clear leader in this collaboration space (my bet would be for Google, long term), there are clear leaders in Online Backup: NPD Group, the company that surveys consumers to rank various consumer products, recently started covering the online backup market and ranks Carbonite as #1 in the market. I think that when the dust settles in four or five years, almost every PC is going to ship with online backup built-in (every Packard Bell in Europe ships with Carbonite pre-loaded with similar deals in the US close behind), you'll be able to buy online backup (and maybe online storage) from your ISP, and online backup may be bundled with other data protection services, such as anti-virus. There will be two or three leading players in the space with tens of millions of subscribers each, and a bunch of little guys occupying various niches.

— Dave
CEO, Carbonite

The news that AOL is trying to sell off XDrive in a fire sale (asking price: $5M vs. estimated $30M they paid) says a lot about the difficulty of mixing business models. When we were out raising our first round of venture capital two years ago, I can't tell you how many times I heard 'I think Google or AOL is just going to end up giving this away.' Well, they are in fact just about giving it away — but it's the company, not the product!

In my opinion, there were business problems AND product problems. AOL's EVP Kevin Conroy explained in an email to employees:

“

To effectively grow the XDrive online storage business we would need to focus on subscription revenues vs. monetizing through advertising revenue, and this business model is not in strategic alignment with our company's goals.

AOL is having plenty of problems with their core media business, let alone trying to build a subscription revenue business on the side. Mixing two totally different business models in one organization is never a wise idea, which is why it's not likely that Google or Yahoo will go down this path. An encrypted backup can't be indexed, so it's of little value to a company whose primary business is search and advertising. Backup is a background application and shouldn't be in the user's face all the time, therefore, I'm not sure how you would get any advertising revenue off of it.

The second problem was the product. There was a time when XDrive was basically backup. Then they added file sharing, storage in the cloud, photo sharing, and a zillion other features, probably thinking that if they had more features it would sell better. Wrong. Every feature added complexity. The success of Carbonite is based on our motto: "Backup. Simple." What XDrive delivered was "Backup (and a whole bunch of other things) complicated." When are engineers going to recognize why products like the iPod are so successful? What's wrong with a device that just plays your songs? Or compare the web pages for google.com and aol.com; is there not an inverse relationship between the amount of stuff on the page to the amount of money in the bank?

— Dave
CEO, Carbonite

I wanted to bring to your attention another very nice review of Carbonite. This one, by Mike, at Simply Offsite is thoughtful and balanced, IMHO. In the comments on his blog, I did try to explain why it's very hard for Carbonite to have an "estimated time to completion" indication for the initial backup like some other backup services do. The reason, in short, is that Carbonite allocates bandwidth dynamically so that it never interferes with your browsing. If you're using the Internet for other things, Carbonite will automatically slow down to get out of the way. So we can't tell you how long your backup is going to take because it depends on whether you'll be using your computer in the meantime. Other backup services transfer data at a steady pace. So while that makes the backup time predictable, it also means that your computer is going to feel really sluggish while the backup is going on – not a good thing.

— Dave
CEO, Carbonite

I just had to comment on a video that I saw on CNN.com (The transcript can be found on the Data Doctors website). The answer given by "the Data Doctor" is a little strange – the guy loves online backup but he doesn't like unlimited backup plans like Carbonite. He seems to think that they are hobbled in some way. This doesn't make an ounce of sense and it would have been good for the "doctors" to check their facts before making such pronouncements. The assertion that vendors with unlimited backup somehow throttle or limit backup speed or capacity in some way is just plain wrong. I know it's not the case with Carbonite, and I suspect that our competitors, like Mozy, similarly do not encumber their unlimited offers. It's amazing how these rumors and "common wisdoms" spread on the Internet and how infrequently experts actually bother to check the facts.

I love these guys for promoting online backup, but I wish they would have reported unlimited backup for the incredible deal that it actually is. I wish they would have said, "With disk storage costs dropping like a stone, vendors like Carbonite are able to offer truly unlimited capacity for a fixed price. Yeah, they probably lose money on a small percentage of their users, but by making it unlimited they keep the user from having to make a lot of compromises and choices."

— Dave
CEO, Carbonite

Recently, online storage space startup divShare announced on their blog a recent security breach by "a malicious user." Lucky for them, only basic profile information available through the database was accessed during the intrusion. But the important question here is what else could have been taken by a more skilled trespasser?

Many people think that backup is a simple application – what's so hard about backing up a PC?   I remember one of my MIT students grousing about Google's success: "Anyone can write a search engine," he said.  Backing up the data is not the problem. The problem is dealing with huge volumes, millions of database transactions, hundreds of thousands of customers, and all the complexity that this implies – all while making sure that there is 100% security.  Carbonite backs up over 50 million new files every day without losing any of them.  Like any other web site, we constantly get attacked by hackers, but we have enough security measures in place that these attacks are always unsuccessful. As I mentioned in a previous post, Carbonite was one of only two backup services that the guys at Heise Security weren’t able to crack. 

If you’re doing your engineering properly, online backup can be made to be extremely secure.  For instance, Carbonite starts with encrypting the data BEFORE it leaves your PC so that by the time we get it, it's already useless to an intruder in the very unlikely event that someone acutally gains access to our system. We also make sure that the authentication is rock solid, so that there are no "man in the middle" vulnerabilities.  And, we actually pay people to constantly test our defenses. 

After we get your encrypted files, we want to make sure that we don't lose them, so we store all your data on RAID-6 redundant arrays that are 36 million times more reliable than a single drive.  The main Carbonite data center is located in a "bomb-proof" building, alongside those of major Boston financial institutions and telco companies.

Online backup is a hot area right now and you'll see more startups entering the space over the next couple of years.  Not all of them will know enough about security to be really bullet-proof.  It isn't easy or cheap, but I can tell you that for Carbonite it's a live-or-die proposition. 

— Dave
CEO, Carbonite

Although it didn't come as a surprise, the news about the SwapDrive acquisition has caused quite a stir in the industry.  Yesterday, we were in touch with eWeek and Backupreview.info, two sites that wanted to share Dave’s view on the acquisition.  eWeek published an article as well as a blog post that included much of what Dave posted on our blog yesterday. BackupReview.info also posted a Q & A to share Dave's thoughts with the online backup industry.

In addition, we issued the following press release:

June 11, 2008

Online Backup Continues to Emerge Mainstream as Old Industry Giant
Snaps up Another Established Backup Brand

BOSTON — (BUSINESS WIRE) — David Friend, CEO and co-founder of online data backup company Carbonite, says online backup is continuing to emerge mainstream, as illustrated by another old industry giant gobbling up an established online backup player.

Symantec acknowledged the truth of reports yesterday that it acquired SwapDrive and its companies, Backup.com and WhaleMail.com, leaving Carbonite as one of the last-standing large independent online backup services.

“Frankly, I was surprised that the price was so low, given how hot this market is,” Friend said. “However, that's the danger of being a white label provider to someone like Symantec. It's like the lawnmower company that sells 80 percent of its output to a major retailer. One day they come along and make you ‘an offer you can’t refuse,’ so to speak.”

In the past year, Mozy has been acquired by EMC and Arsenal Digital was acquired by IBM. In previous years Connected and LiveVault were acquired by Iron Mountain, and EVault was acquired by Seagate Technologies

“The online backup space is hot and everyone is suddenly interested in getting into the game,” Friend said. “Symantec realized you can protect your PC with antivirus, anti-spyware, and so forth, but the most important thing to protect is your data. Only online backup provides that protection. No anti-anything can keep your hard drive from crashing or keep a burglar from stealing your computer.”

Carbonite recently passed its 200 millionth file restored and has backed up more than three billion files for consumers and small businesses.

“One by one our competitors have been snapped up by big old companies and we are standing alone as the top independent backup provider,” Friend said. “We’re poised to become the trusted brand in online backup, much like Norton emerged for anti-virus. With a simple and trustworthy product, we are in a position to continue our rapid growth.”

About Carbonite

Carbonite launched its Online PCBackup™ service in May 2006. Carbonite’s industry-first offer of unlimited backup space for a flat low price revolutionized the market for consumer and small business backup services. So far the company has backed up more than 2.5 billion files, has restored more than 160 million lost files for its customers and has a large data center where capacity is measured in petabytes. There are Carbonite users in nearly 100 countries.

Founded in 2005, Carbonite believes that computer users should not have to think about backup. The company’s mission is to provide an affordable, reliable, secure and easy-to-use solution for the mainstream computer user. Carbonite is available to consumers and small business through numerous channels, including its corporate Web site, major US retailers and international distributors. For more information, please visit www.carbonite.com.

— Alison

Symantec announced today that they have acquired Swapdrive for $123 million. Swapdrive is the white-label online backup company that has been providing the free 2GB offer that is included with every copy of Norton 360. Frankly, I was surprised that the price wasn't higher given how hot this market is. However, that's the danger of being a white-label provider to someone like Symantec. It's like the little lawnmower company that sells 80% of it's output to Sears. One day they come along and make you "an offer you can't refuse," so to speak.

From what we hear, the take rate on the Norton 360 backup option has been pretty good. The bundle definitely makes sense: you can protect your PC with antivirus, anti-spyware, and so forth, but the most important thing is to protect your data. And only online backup provides that protection. No anti-anything can keep your hard drive from crashing or keep a burglar from stealing your computer.

One by one our competitors have been snapped up by big old companies. LiveVault, EVault, Connected, and most of the old-line enterprise online backup companies have been bought. Mozy was recently bought by EMC for $76M. And now SwapDrive for a reported $123M.

Our ambitions go far beyond the white-label strategy of Swapdrive. In the consumer space, Carbonite now has 11% brand recognition. Swapdrive is probably 0. Norton was one of the early providers of anti-virus software and built a brand that, for a while, was almost synonymous with anti-virus in the consumer and business markets. We’re trying to do the same thing with backup – that’s why you hear our endorsement ads on radio shows with hosts like Howard Stern, Rush Limbaugh, and others. In fact, I often tell our employees that we’re going to be to online backup what Norton is to anti-virus. While we have lots of co-marketing and reselling deals, it should be clear to everyone that one of our goals is to be the trusted brand name in online backup.

The online backup space is hot. Everyone is suddenly interested in getting into the game. We just cut a deal with a leading PC manufacturer (announcement shortly) that is starting to ship their PCs with a free subscription to Carbonite pre-loaded. In a few years, online backup will be part of the pre-install on every PC. Why? Because when your hard drive crashes and you lose all your family pictures, you don’t blame Seagate or Western Digital – you blame your PC manufacturer. It’s a big brand liability issue for the PC manufacturers. Carbonite can make that problem go away for a PC manufacturer. Similarly, bundling online backup with anti-virus makes sense and we’re pursuing partnership deals.

When you look out 5 years, I think almost everyone will be backing up their PC using services like Carbonite. Broadband is getting cheaper and faster, and disk storage costs are dropping like a rock. The alternatives don’t look very attractive: a) don’t backup and risk losing everything, b) buy an external hard drive. External hard drives are not ideal for backups because they usually sit right next to your computer, so if someone breaks in and steals your computer, or if it is damaged by fire, flood, or virus attack, both the computer and the hard drive will go bye-bye. Plus they are prone to failure (roughly 3% per year die) – a RAID6 array that stores your data at Carbonite is 36 million times more reliable than an external hard drive.

We think Carbonite is a much better product than Swapdrive (we are of coursed biased in that regard) — it’s much simpler to use, and much less expensive.

We just want to keep building the best online backup company in the world and hopefully take it public in a couple of years.

— Dave
CEO, Carbonite