Cloud Backup and Online Storage: Has the Shakeout Arrived?
The cloud backup and online backup markets are both expanding and consolidating. Two recent examples: VaultLogix has acquired assets from Utility Backup Solutions, and Vembu recently acquired Cloud Nucleus. Those deals surfaced around the same time that Axcient — a hybrid cloud storage specialist — raised $15.5 million in venture capital funding. Plus, more private equity is expected to flow into the managed services software market really soon, MSPmentor has learned. So how can markets expand and contract at the same time? Here’s some perspective.
My take: Industry consolidation has arrived in two key MSP markets: RMM software and cloud storage. Investors are pumping money into stronger players, and vendors are buying up smaller, sometimes struggling players.
The latest deal: By acquiring certain Utility Backup Solutions assets, VaultLogix now has 5,000 business customers worldwide. VaultLogix claims to offer “complete online backup solutions, either through its own proprietary solution, Internet Vault Advantage, or through existing relationships with third-party online backup software providers.
Financial details were not disclosed. But VaultLogix says the deal will boost revenues while generating “significant cost savings” on a go-forward basis.
The Shakeout Arrives?
The VaultLogix deal comes a few weeks after Vembu acquired Cloud Nucleus, and around the same time that Zenith Infotech spun off Zenith RMM in a private equity deal. And generally speaking, I think we’ll see more M&A (merger and acquisition) activity in the online backup market, especially among cloud backup providers that engage MSPs.
The reason: It seems like the MSP market is overflowing with cloud storage providers that are attending MSP-centric conferences to recruit partners. Is there really enough room for all of these players?
No doubt, stress levels are rising. In recent days, we’ve witnessed a public online squabble between Datto CEO Austin McChord and Axcient. In an open letter, McChord claimed Axcient was spreading false and misleading information about the Datto-StorageCraft relationship.
Axcient CEO Justin Moore’s response: Axcient’s marketing department jumped on an opportunity to engage Datto’s installed base. The opportunity allegedly involved Datto jumping from Appassure back to StorageCraft because of scalability limits.
Moore downplayed the squabble. But I think it exemplifies the changing managed services and backup landscape. Competition is intensifying. Fast-growing companies are attracting venture capital. M&A deals — sometimes involving weaker players who need well-funded parents — are accelerating. And we’ll see another major private equity deal really soon in the managed services space, a trusted MSPmentor source continues to tell me.
JP, sounds like the old PSA battles that occurred a few years ago. There are so many options out there MSPs to choose from and many great solutions that rarely get any air time. This is truly a blood red ocean. Fierce and cut throat competition. What does the MSP do? I recommend they turn to their peers for trusted advice instead of getting involved in the hype.
Stuart Crawford
MSP Business Consultant
416.827.5339
Stuart,
Yes, word of mouth is incredibly important. But I think the current situation with cloud storage and online backup goes beyond trusted friends and the old PSA battles. In PSA, we didn’t see a ton of Mamp;A because there are a handful of successful players.
In cloud storage, the Mamp;A, venture cap, private equity trends are all accelerating and MSPs have to start asking the more difficult questions of their cloud storage providers:
1. How are you funded? When were you funded? Do you need more funding? What’s the short- and long-term commitment from your financial backers?
2. Are you cash flow positive? EBITDA positive? Net income profitable? If no on those answers, when will those metrics become positive?
3. How do I get my customers’ data out of your system if you close, get acquired, change your partner strategy, or go dark?
4. Can you guarantee that you’ll never call my customers directly and will never attempt to take the service direct?
Please note: Generally speaking, I think the vast majority of cloud storage and online backup companies working with MSPs have the best interests of MSPs in mind. But the competitive landscape is changing fast. It’s good to ask for advice from friends. But it’s time for MSPs to start asking more strategic questions as well.
-jp
When your peers are techies, then you’ll get a convincing techie reason why to go with a specific vendor. Instead I would recommend similar to what JP suggested – asking the deep questions that are more business related. Recently, I switched from one BDR/BCP vendor to another – this time around, I did more than just listen to the soapbox talk at an MSP event – I actually took the time to fly down to their head office, kick the tires, talk to the executives (from sales to marketing to technical to product management) and clearly show that I am not here to just resell/repackage your solution, I am here to make sure you are aware that I AM WATCHING YOU. This is no longer a vendor relationship, it is a much deeper than that. MSP’s need to realize that the level of intimacy that they have with their solution set providers will make/break how successful they are in positioning those solutions to their customers.
Osama,
We used a similar approach when we shifted cloud services providers. Our team specifically quizzed the hosting provider about their expertise on our platform — including our content management system and database. The answers were spot-on. And since the hosting provider is publicly held we can track their financial health. Peace of mind.
-jp
JP, on one of the MSPMentor LinkedIn discussion threads, I recently got into this whole argument with another BDR provider (names unmentioned). He was bemoaning another vendors apparent aggressive tactic to take more market share, and gave an argument that “they are VC funded, while I’ve grown this out of my basement”. I found it a very uncompelling argument, and similar to your last point, I find it comforting that this BDR provider IS able to raise millions in VC funding in the economic client that is happening these days. This means they’re on to something, it means they have a BOD that will hold the management accountable for the business. All things that are GREAT for me, as an MSP looking for a long term BDR partner.
Osama,
I see your points and I’ve heard both sides of the argument.
1. VC-funded firms: Obviously, they must be doing something right since they attracted venture capital. No doubt, venture capitalists only open their wallets when they see the potential for a huge return on investment.
2. Self-funded companies: They will proudly proclaim that they fully control their own destiny since they don’t have to answer to outside investors or a VC-influenced board of directors.
I certainly see upside to both arguments. Is one approach “better” than the other? Absolutely not. It depends on each company and their short- and long-term goals.
-jp
I had to laugh when I saw the back and forth between Axcient and Datto. It’s not surprising Axcient’s CEO engaged in strange marketing practices. He has no background in business despite the bio on Axcient’s website that suggests he’s a “serial entrepreneur”. The bio references something called MK Global – go try and figure out what this business is. Axcient employee turnover is roughly 50% per year, a good indicator of management inexperience. Axcient’s CEO claims some connection to Stanford University however he’s smart enough to NOT list this on the website bio, it’s mostly like another piece of sketchy information. As far as anybody can tell he’s a trust fund guy whose uncle and father bought him the business via VC contacts.
Suggesting that just because someone got VC funding, that “they must be doing something right” is incredibly naive.
Edgar@7: I’m all for background checks. But have you seen the talent Axcient has hired in terms of SaaS and IPO veterans? That doesn’t guarantee success but it’s quite an executive team…
Alan@8: Fair point. VCs sometimes make some really, really bad investments. But… They also demand huge returns on their money, and they don’t write checks for the sake of writing them.
-jp