CLOUD BACKUP AND SMB CHANNEL OPPORTUNITIES

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Solution providers dealing in cloud-based storage are a happy and prosperous lot. An estimate from
market research firm Markets & Markets has the cloud storage market, inclusive of online backup
services, growing at a rate of 40 percent year over year and hitting $46.8 billion by 2018 – creating
ample sales opportunities for solution providers.
Economics are behind the steady migration of data storage to cloud resources and services.
Enterprises and SMBs generate unstructured data at a growth rate of 60 percent annually, by some
estimates. With the proliferation of mobile devices, cloud-based applications and autonomic sensors
and systems, the volume of data requiring storage and backup is proliferating faster than even large
enterprises can add capacity. Cloud storage and backup are the economical choices.

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http://www.carbonite.com/in-action/cloud-backup/white-papers

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CLOUD BACKUP AND SMB CHANNEL OPPORTUNITIES

  1. 1. CLOUD BACKUP AND SMB CHANNEL OPPORTUNITIES A 2112 WHITE PAPER — APRIL 2013 SPONSORED BY
  2. 2. CONTENTS THE CLOUD BACKUP MARKET 2 ONE SIZE DOES NOT FIT ALL 3 QUALITY OF SMALL BUSINESS BACKUP 4 BACKUP: AN EXTENDED SERVICES OPPORTUNITY 5 STARTING SMALL BUSINESS BACKUP SERVICES 6 BACKUP TO INCREMENTAL GROWTH 7 ABOUT 8 Carbonite, Inc. commissioned The 2112 Group to produce this white paper on backup services and corollary SMB market opportunities. Though sponsored, this white paper is solely the work of The 2112 Strategy Group LLC, and the positions and conclusions are exclusively those of The 2112 Group and are subject to change without notice. Information contained in this publication has been obtained by sources and methodologies of The 2112 Strategy Group LLC, D/B/A The 2112 Group, and is considered to be reliable but not warrantied. This publication may contain the opinions of The 2112 Group, which are subject to change. This publication is copyrighted by The 2112 Strategy Group LLC. Any violation of the limited terms of reproduction or redistribution of this publication, in whole or in part, whether in hard-copy format, electronically or otherwise to persons not authorized to receive it, without the express consent of The 2112 Strategy Group LLC, is in violation of U.S. copyright law and will be subject to an action for civil damages and, if applicable, criminal prosecution. Any questions should be directed to The 2112 Group at (347) 770-2112 x104 or info@the2112group.com. SPONSORED BY
  3. 3. THE CLOUD BACKUP MARKET Solution providers dealing in cloud-based storage are a happy and prosperous lot. An estimate from market research firm Markets & Markets has the cloud storage market, inclusive of online backup services, growing at a rate of 40 percent year over year and hitting $46.8 billion by 2018 – creating ample sales opportunities for solution providers. Economics are behind the steady migration of data storage to cloud resources and services. Enterprises and SMBs generate unstructured data at a growth rate of 60 percent annually, by some estimates. With the proliferation of mobile devices, cloud-based applications and autonomic sensors and systems, the volume of data requiring storage and backup is proliferating faster than even large enterprises can add capacity. Cloud storage and backup are the economical choices. Businesses are acutely aware of the consequences of ignoring data backup and protection. Estimates vary, but some surveys find that as much as 70 percent of businesses that suffer a catastrophic data loss go out of business within a year. The inability to restore operational data to a productive state hobbles businesses, costing them the ability to fulfill contracts, process payments and collect on debts. Without data, they have no documentation, no authorization and no recourse in their customer and supplier dealings. It’s of little wonder that backup is a favorite of the channel. According to the CTTA State of the Cloud Channel 2013 report, 61 percent of solution providers offer some form of cloud-based data backup and recovery service. Moreover, demand for cloud backup is growing: Solution providers report 58 percent of their customers ask for services for fresh installs or replacements for legacy hardware and software solutions. BACKUP IN THE CHANNEL 61% 58% Solution Providers Offering Backup End Users Requesting Backup Products/Services While many fine backup solutions are available for solution providers to offer as resold products or as part of larger integrated systems, there is no one-size-fits-all product. Many BC/DR vendors offer complex solutions that leverage expensive hardware, software and cloud assets for critical data, machine images and databases. The operative words are “expensive” and “complex” – two attributes well beyond the needs and desires of the average small business. While small businesses need data backup and protection, they either don’t require or can’t afford solutions designed for organizations even just slightly larger than theirs. Small businesses want backup solutions that provide scale, ease of use, reliability and affordability. To meet the need and demand of this market segment, solution providers need backup services with these critical attributes, plus the manageability and control to deliver hosted services without compromise. SPONSORED BY 3
  4. 4. ONE SIZE DOES NOT FIT ALL Small businesses are not simply smaller versions of the companies that make up the Fortune 500, just as the largest corporations are not bigger versions of their Main Street cousins. Companies have different operational and technology needs within the business hierarchy and, likewise, have different constraints, such as limited expertise, budget and resources. What do small businesses look like? They were once easy to define. They have fewer than 50 employees; in fact, the average U.S. small business has 10 or less employees. Small businesses often operate out of single locations, although many are now virtual, meaning they have no physical location but rather distributed, home-based workforces. They deal with a mix of company- and personal-owned devices and, increasingly, leverage cloud computing applications and infrastructure resources.Ten years ago, backup for a small business meant little more than a manually operated tape drive attached to a server, occurring over the weekend because transfer times were so slow. Consequently, recovery-time and recovery-point objectives were measured in days and weeks – and this was just for the small businesses that had backup. Many went without backup products because they were too expensive and difficult. SMALL BUSINESSES SHARE COMMON CHARACTERISTICS IN THEIR TECHNOLOGY NEEDS: Costs Small businesses have tight IT budgets. They are strained to pay for basic equipment and services, while the cost of conventional backup is prohibitive. Small businesses will default to the lowest-cost option and trim “extraneous” expenses even if it puts them at risk. Expertise If a small business has an IT staff, it is an overworked bunch. They often wear multiple hats and are responsible for nearly every aspect of IT implementation, operations and remediation. Skills are limited and demands are high. Simplicity Given their limited resources and skills, small businesses need IT products that are simple to use. It’s not just a matter of functionality, but usability; end users on this level avoid products and systems that are difficult and impede process. When it comes to backup, many conventional and hybrid-cloud products and/or services are too complex for the average small business. Anything that requires hardware, software and cloud resources has more power and capacity – at a substantial cost – than most small businesses can use or manage. Even still, small businesses have evolving data backup and protection needs. While they do not want or need complexity, they require systems that can back up conventional endpoints, mobile devices, file servers, server images and databases. Small businesses are not always sophisticated, but that does not diminish the value of their data or their need to ensure its availability. Small businesses aren’t oblivious to their backup needs, but the definition of “backup” is not always clear. Many small businesses confuse backup with other solutions, such as file-sharing and synchronization services – hence the reason many use the same consumer-grade services for their collaboration features, data portability, and data storage and backup needs. SPONSORED BY 4
  5. 5. QUALITY OF SMALL BUSINESS BACKUP Every business will suffer a data loss or corruption, to varying degrees of severity. Enterprises are wellequipped to weather data losses because they have sophisticated backup and distributed infrastructure. Small businesses, though, are more susceptible to data-loss consequences: Even minor incidents can result in severe disruptions to operations and revenue-generating activities. Backup for small businesses comes in several forms: on-premises hardware, hybrid cloud services that use on-premises hardware to facilitate backup, and clientless cloud-based backup services. For small businesses, these share a common attribute: ease of use. Small business backup is often just a matter of storing files, which is why file-sharing and synchronization services such as Dropbox and Carbonite’s Currents (currently in beta) are so popular. Cloud-based storage and backup services offer a drag-and-drop functionality that gives users the perception they are working with an extended version of their operating system’s native file structure. Several file-sharing and backup services, such as those from Carbonite and Mozy, offer cloud-based applications in which files are indexed and backed up to the cloud as soon as they are opened or closed by the user. These services will run periodic BACKUP FOR SMALL backups, such as upon system startup, ensuring they have the latest file BUSINESSES COMES versions. IN SEVERAL FORMS, Some small businesses, however, have moderate to sophisticated backup BUT ALL SHARE A needs – especially if they have multiple servers and databases requiring COMMON ATTRIBUTE: backup. For them, local hardware or hybrid cloud backup services may be EASE OF USE. more appropriate than cloud-based backup services. In the hybrid model, the local controller acts as a broker between the on-premises infrastructure and remote/cloud storage resource. Additionally, several cloud-based providers are adding functionality to backup and protect computer and server images, as well as common database types. The benefit of remote versus on-premises backup is location. During Super Storm Sandy in October 2012, many small businesses discovered how ill-prepared they were for extended outages and data losses when their on-site servers and backup were without power for up to two weeks. Some businesses suffered permanent losses; their servers and tape drives were destroyed by flood waters and power surges. Those with remote and cloud backup found their data was safe even if their local infrastructure was damaged or destroyed. While SMB and midmarket versions of hybrid and on-premises backup products aren’t plug-and-play, small businesses can contract with managed services providers (MSPs) that can administer, troubleshoot and support backup processes and, if needed, data recovery. Many small and midmarket businesses contract with MSPs for this level of support because it is cost-effective and less burdensome than in-house deployment and operation. In a managed services context, complexity isn’t an issue for the consuming customer because the bulk of the operating burden is assigned to the provider. SPONSORED BY 5
  6. 6. BACKUP: AN EXTENDED SERVICES OPPORTUNITY The most common cloud service – and one of the most popular managed services delivered by the channel – is backup and storage. Many MSPs and value-added resellers (VARs) got their first taste of services by performing remote monitoring and management of network infrastructure, servers and desktops. Over time, solution providers (as the different types of channel partners are collectively known) looked for services to augment and expand their revenue and profitability. Backup, given its ubiquitous need, was the natural choice. Today, 61 percent of solution providers offer some form of cloud backup service, and 55 percent offer a storage service. More significantly, the demand for backup services remains high: More than half of solution providers for the last three years say their customers ask for cloud backup by name, which is significant because it reflects how customers understand they need a specific type of solution, not just the description of a problem. Backup as a service – whether a pure cloud service or managed service – is one of the stickiest types of protracted engagements, as backup requires constant monitoring, management, refinement and support. End users who sign up for backup services are almost guaranteed to renew and expand their utilization, which increases recurring revenue for the provider. Through cloud and managed services, solution providers seek recurring and predictable revenue. Unlike conventional product sales sold as capital purchases during one-time events, services are most often sold on a recurring revenue basis and billed on a monthly or quarterly basis. Solution providers selling these services know precisely how much they will receive and when the can expect payment, making for more predictable expense management and profit. Backup is more than just a singular product or services sale; it is an opportunity for horizontal sales. With insights into data generation, application usage and infrastructure utilization trends, solution providers gain deeper insights into their customers’ operations and needs. For industrious solution providers, anticipating and addressing future needs opens opportunities. According to research by The 2112 Group, traditional managed services and managed cloud services are the most profitable technology delivery models. However, professional services – typically sold on a term engagement – are the most profitable sales a solution provider can make. Backup opens tremendous professional services opportunities, as small businesses need support in identifying and understanding their backup needs, designing and implementing solutions, and testing backup systems and plans. Through professional services engagements, solution providers can enhance their profitability and extend the value to and perceived by their customers. Some in the channel say backup has matured to the point at which it is a staple of the managed services equation. In other words, an MSP isn’t worth much if it doesn’t have backup in its portfolio. There is some wisdom to this, as backup completes and complements so many other technologies delivered by MSPs and cloud resellers. However, labeling it a staple shouldn’t detract from the enduring value backup provides MSPs and their customers. Nothing is immune to commoditization pressures, but backup is awfully resistant. SPONSORED BY 6
  7. 7. STARTING SMALL BUSINESS BACKUP SERVICES Despite the high numbers of solution providers delivering cloud or conventional backup services, ample opportunity remains. Many small businesses are just now adopting data protection and backup, and while individual sales to small businesses are small, the total addressable small business market is huge. These factors point to a potentially rich opportunity. Solution providers have choices when considering a small business backup practice. First, they need to decide on the model. Product sales that customers self-manage will be less profitable as hardware and software commoditizes. The better options are partnering with a cloud provider or delivering a self-administered managed service. When it comes to small business backup, solution providers overwhelming prefer partnering with a software-as-a-service (SaaS) provider (52 percent) over building their own service delivery infrastructure (27.5 percent), according to 2112 research. Partnering with an SaaS provider is a more palatable option for solution providers, particularly smaller organizations, because they are undercapitalized and cannot afford the expense or risk exposure of developing their own infrastructure. Furthermore, 48 percent of solution providers selling or supporting backup services say they are challenged in finding sales and technical staff members that understand the cloud business model and can execute on service delivery. Expense and risk tolerance are important factors in developing service offerings. The 2112 Group’s study of services models finds solution providers have to make huge upfront investments in infrastructure, software, staffing and training to build the infrastructure for self-delivered offerings. After that, there is another nine to 12 months of cash-flow-negative operations – solution providers must operate with full expense while developing revenue-generating accounts. By comparison, partnering with an SaaS vendor for backup services is far less rigorous. The initial investment is in familiarization with the service business model, attributes and technical training. Depending on the service, there is the potential for integrating with a professional services automation (PSA) platform, which many MSPs and cloud resellers use to manage accounts. The startup costs are trivial compared to the expense borne by self-developed services providers, as there are no overhead operating costs. The downside to partnering with an SaaS provider is lower and longer returns on investment. As the business saying goes, “With risk come rewards.” The inverse is equally true: The rewards (profits) typically go to the SaaS provider, which bears the cost of building and maintaining the delivery infrastructure. Solution providers will profit, but receive a lower share commensurate with their investment. Profitability comes from volume sales and/or value-add offerings attached to the service, which requires the solution provider to have a focused sales and marketing operation. If sales acceleration is the goal, solution providers have to take the marketability of their vendor partners into consideration. Few backup vendors have true top-of-mind awareness among SMB customers. Many backup vendors are arming their solution providers with marketing materials, training and lead-generation support. Others, such as Carbonite and Box, are investing in mass marketing to lift their brands to the forefront of end-user purchasing consideration. Vendors investing in brand awareness often need less explanation, which shortens solution-provider sales cycles. SPONSORED BY 7
  8. 8. In either case, the value is seen in the market opportunity. In the CTTA State of the Cloud Channel 2013 report, one-third of solution providers rate backup services as the most likely to retain and return value – profit – over the next 24 months. With continued growth and a sustained profit outlook, cloud-based backup, regardless of the go-to-market model, remains a relatively safe bet. BACKUP TO INCREMENTAL GROWTH Cloud-based backup has a positive outlook for the foreseeable future: It is a technology services segment projected to grow by as much as 70 percent year-over-year, with strong demand in the SMB market. This is a recipe for success in the solution-provider community, particularly for those adopting expedited go-to-market strategies and partnerships, and setting strategic initiatives for incremental revenue and profit growth around backup services. Solution providers, for the first time, see cloud computing as a growth engine. Two-thirds of solution providers, according to the CTTA State of the Cloud Channel 2013 report, believe cloud services have the potential to grow their revenue above current levels. Among solution providers selling cloud backup and storage products, the percentage of those expect ingincremental growth is nearly 70 percent, with 30 percent saying they expect at least 70% OF SOLUTION 25 percent incremental increases. PROVIDERS SEE BACKUP Just how important is cloud backup to service providers? For many, it is a matter of winning and losing sales. In the CTTA report, 48 percent of solution providers selling backup services say they lost or suspect they lost a sales opportunity because they could not fulfill a customer’s cloud request or need. This is particularly true in the SMB segment, where many existing cloud and conventional backup services have more features than small businesses need at prices they can’t afford. AS A SOURCE OF INCREMENTAL GROWTH 30% OF SOLUTION PROVIDERS EXPECT TO BACKUP TO GROW THEIR BUSINESSES BY AT LEAST ONE-QUARTER The addition of cloud-based backup services and hybrid cloud products gives solution providers a tool that remains in high demand and is seemingly strong at retaining value. The ability of these backup offerings to be delivered as a managed or cloud service means they will generate consistent revenue and profit over a period of years, as subscribing customers do not lightly drop such services or switch providers. Even for solution providers with existing backup products and services, the addition of hybrid or cloud products gives them options for offering customers solutions at variable price points. High demand and high value don’t equal success. Cloud-based and hybrid backup services can offer solution providers an entry point into the potentially lucrative market segment, or they can be a means to augment existing services with relatively low risk. Capitalizing on this opportunity, however, requires focus on sales and customer engagements, continually building their customer base and expanding consumption in existing accounts. Those that can find this focus – and the right cloud-based services – will reap more than their share of the burgeoning cloud services market SPONSORED BY 8
  9. 9. ABOUT THE 2112 GROUP The 2112 Group is the premier provider of channel development, market research, partner communications and strategic content to IT vendors, distributors and solution providers around the world. Based in New York, 2112 is dedicated to helping all members of the channel community achieve greater and sustained levels of success through strategic planning, market intelligence and smart decision-making. Our clients span the Fortune 500 to startups, distributors to next-generation cloud providers, and value-added resellers to managed services providers, all sharing a common view that the indirect technology channel is the best route to market. Our premier publication, Channelnomics, is an analysis Web site devoted entirely to providing the channel community with insights into the trends impacting the IT marketplace. Together, 2112 and Channelnomics provide the most comprehensive set of strategic, analytical and actionable products and services in the channel. > On the Web: www.the2112group.com | www.channelnomics.com > Social Channels: @the2112group | @channelnomics CARBONITE Carbonite, Inc. (NASDAQ: CARB) is a leading provider of online backup solutions for consumers and small businesses. Subscribers in more than 100 countries rely on Carbonite to provide easy-to-use, affordable and secure cloud backup solutions with anytime, anywhere data access. Carbonite’s backup solution runs on Windows and Mac platforms. The company has backed up more than 300 billion files, restored nearly 20 billion files and currently backs up more than 350 million files each day. > For more information on Carbonite: www.carbonite.com | twitter.com/carbonite | twitter.com/carbonitebiz or facebook.com/CarboniteOnlineBackup. SPONSORED BY 9

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