Online data storage services can still be profitable, providers say

Solution providers can use online data storage services as the first step toward selling more valuable IT services to customers.

The number of vendors entering the online data storage services market seems to grow daily, but VARs contend there’s still money to be made.

Managed service providers (MSPs) and online backup resellers face margin pressure in an increasingly competitive space, and rates have plummeted in response to the sheer number of companies offering services.

More on data storage services

SMB backup products focus on virtual environments and cloud

Online backup and storage monitoring tools boost customer confidence

Cloud storage solutions present four points of entry with customers


To stand out from the crowd, companies are bundling backup services into broader product offerings. Some channel executives, reinforcing that point, say they never sell backup services as a standalone product. And, in another bid to add value, service providers offer different varieties of backup to cover a more comprehensive set of data recovery pain points.

Making money with tight data storage services margins

Online backup margins have shrunk considerably since the early days, when companies charged as much as $15 per gigabyte, said MJ Shoer, president and virtual chief technology officer at Jenaly Technology Group Inc., an outsourced IT services firm based in Portsmouth, N.H.

“That seems so outrageous right now, but it’s no different than any new technology that matures,” Shoer said, noting that a dedicated T1 Internet connection cost more than $4,000 per month in the mid-1990s.

Companies that provide online backup services should also expect margins to be somewhat lower than in other aspects of the service provider business model, said Aaron Hollobaugh, vice president of marketing at Hostway Corp., a managed hosting and cloud services provider. Backup requires a higher level of support, which adds to the cost of providing the service, he said. Hostway plans to launch a cloud-based backup service in Q2.

“The margins are tightening up because people are being more and more cost conscious, and there are more and more vendors out there,” said Sean O’Rourke, founder and principal of Syzygy 3 Inc., a New York City company that offers consulting, design/build and support services. “If you want to keep the margins up, you need to offer something that differentiates yourself.”

Standing out as an online data storage service provider

MSPs and resellers who want to put their own stamp on backup may wrap that function into a larger set of services.

“Fundamentally speaking, you do it as a part of your overall service offering,” said Shoer, whose company offers backup services from Intronis Inc. “You don’t necessarily offer it as a specific, chargeable line item.”

“We really don’t go out and sell that as a standalone service,” said Nick Pegley, vice president of marketing at All Covered, a division of Konica Minolta Business Solutions USA Inc. “It’s always part of a full support environment.”

Qsource Networks LLC, a managed network services provider in Alpharetta, Ga., offers online backup as an optional part of its outsourced IT service line. Most customers take advantage of the online backup service, said Joseph Lamb, chief executive officer. Qsource, which manages a customer’s existing server infrastructure or provides that infrastructure in its own cloud, works with Vembu Technologies’ StoreGrid to provide backup.

Hostway’s cloud backup service also aims to stand out by storing a minimum of three copies of every instance, as opposed to storing one backup version, Hollobaugh said.

“In addition, in 2012, we will enhance the backup solution that allows these customers to have multiple copies on multiple servers in a single data center to have the copies stored in different, geographically-dispersed data centers,” he said. That can help them meet regulatory and compliance requirements.

Solution providers with a range of online data storage services

Channel companies also provide varying types of backup to meet customers’ needs and improve their competitive footing.

At Syzygy 3, the company initially offered a backup service from Backup My Info! (BUMI) but has since added its own backup services to the mix. The two solutions help address different types of clients and requirements, O’Rourke said. “We were losing out on clients going to Mozy and some of the other online services,” he said. “We decided to create something internally to supplement the BUMI service.”

Most customers need to respond to a range of data loss situations, from inadvertent deletions to fires, All Covered’s Pegley said. They may also have different recovery time objectives for different types of data.

“There’s no ... single backup solution that covers every requirement,” Pegley said. “A plan for deploying the backup and archiving and business continuity that they need ... may well combine a number of different technologies.”

All Covered partners with Autonomy Corp. and Axcient Inc. to provide backup options. Autonomy provides cloud-based backup, while Axcient has an on-site appliance that can act as a temporary server if a customer’s hardware fails.

Online backup solutions can be profitable

Industry executives acknowledge online backup isn’t an easy market, but they assert there’s room for optimism when it comes to margins.

Online backup rates, even in decline, still contribute to the profit outlook. Profit per customer may be less, but more customers are buying the service because it’s less expensive. Only a couple of customers may have been willing to spring for online backup during the technology’s $15-per-GB period. But at $1.50 per GB or less, nearly every client becomes a candidate, Shoer said.

There are other factors to consider when selecting an online backup vendor as a partner, Shoer said: Can the vendor deliver a service at a good price point that allows a fair markup? Service providers should also consider the reliability of the backup service and the level of support available. The vendor’s investment in educating resellers is another factor.

Partnering, as opposed to building a backup service in-house, also reduces the cost of providing services, Hollobaugh said. He sees a margin-rich future in cloud backup, despite market pressures.

“If we can win their business there, it usually extends into other opportunities in those organizations,” Hollobaugh said.

About the author
John Moore is a Syracuse, N.Y.-based freelance writer, reachable at [email protected].

Let us know what you think about the story; email Leah Rosin at [email protected], or follow us on twitter.

Dig Deeper on Storage Backup and Disaster Recovery Services