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For channel partners, the backup and disaster recovery business looked like the ideal business opportunity: Get paid to protect customers' ceaselessly growing stores of data.
Many resellers and managed service providers (MSPs) allied with backup software or cloud services providers to offer online data protection. Prospects looked strong. But then economics got in the way. Channel backup and disaster recovery (BDR) specialists typically have been charging customers on a per-gigabyte basis, but customers' data holdings rapidly outgrew their ability to pay. The backup providers soon found themselves facing downward pressure on pricing amid intense competition from other BDR players.
Gayle Rose, CEO of EVS Corp., a BDR services and business continuity company based in Memphis, Tennessee, experienced this trend. She said the volume of customer data has been growing at perhaps 30% to 50% each year since the company launched in 2005.
"Initially, when we looked at this as a business model, it just seemed like a great problem to have," Rose said of the growth of customer data. "Then you quickly realize that the economics are such that there will be a breaking point."
EVS is particularly sensitive to the economics of storage. The company primarily focuses on BDR services, unlike other channel companies that operate BDR as one of several lines of business. Rose described the prices that EVS was able to charge in its early years as "completely unsustainable," given the volume of data its customers maintain today. For companies like EVS, the task becomes one of keeping costs in check and fees affordable.
"We have to reduce our cost and ... then adjust our pricing for our clients to be able to afford our services," Rose said.
BDR services and software vendors, some of whom rely heavily or exclusively on channel sales, are responding to the cost and pricing issue. Vendors are now rolling out technology stacks and pricing strategies that they contend will help partners address the soaring rate of data expansion.
Engineering cost reduction
Asigra Inc., a Toronto-based cloud backup, recovery and restore software vendor, last month introduced a storage architecture that the company says focuses on cost reduction. The company said its Software-Defined Data Protection (SDDP) architecture reduces the storage cost structure by up to 50 percent. Asigra, which markets solely through the channel, works with partners in a couple of ways. Partners can resell Asigra Cloud Backup software licenses to customers or they can use their own infrastructure and Asigra's software to provide a cloud BDR service.
Gayle Rose, CEO, EVS Corp.
"The cost structure related to their storage systems is no longer sustainable for them," Farajun said.
Asigra's strategy with SDDP is to liberate the software components -- operating systems, file systems and management software -- that are packaged with high-end storage arrays. Asigra views those components as "expensive software storage stacks" that significantly contribute to infrastructure costs. SDDP, however, replaces those components with a combination of its own software and open source components.
SDDP taps FreeBSD as its operating system and includes a ZF v28 file system, PostgresSQL database and an OpenNMS monitoring application, all of which are open source. Asigra has integrated those software pieces, along with its own cloud storage software, into an ISO image, which partners will be able to download for free. The image may be installed on physical hardware or on a virtual machine.
"We have done all the background integration ... around software components," Farajun said.
Rose said EVS, which offers a cloud backup and recovery solution built on Asigra, stands to benefit from SDDP. For one, unbundling storage software from the array opens up opportunities to use less expensive hardware.
"We can now use more commoditized hardware rather than expensive brand names," she said.
In addition, SDDP simplifies the configuration and deployment of backup units, Rose said. According to Asigra, SDDP reduces backup vault integration time from three to four days to one hour and provides faster time to market through its auto-configuration and deployment features.
Pricing models target costs
Datto, a Norwalk, Connecticut, company that provides backup, disaster recovery and business continuity solutions, is changing its pricing model in a bid to help its channel partners. Austin McChord, founder and CEO of Datto, said his company is moving away from a per-gigabyte pricing approach.
McChord called the per-gigabyte pricing method "a bad way to measure the service," noting that not all gigabytes are created equal. He said a gigabyte of data on a solid-state drive versus a gigabyte on a 7200-rpm disk drive versus a gigabyte on tape all have different properties.
"It becomes confusing for partners and end users to differentiate," McChord said.
In response, Datto in March introduced a retention-based pricing model for its flagship SIRIS BDR product. That model lets channel partners charge according to the data retention period -- one year or seven years, for example. McChord said the longer period appeals to customers that are looking for long-term storage for tax reasons or regulatory requirements.
He said customers can more readily understand how long they will need to store data as opposed to how many gigabytes they will need to store it.
"It is much easier for MSPs to sell that value proposition to their end users," McChord said.
In addition, the pricing strategy provides partners some guarantee of margins, McChord said. He said retention-based pricing has proved popular with partners, adding the company could potentially roll out that pricing for other Datto products in the future.
Steven Saslow, vice president and director of business development at Information Technology Group, a managed IT services provider in North Haven, Connecticut, and Datto Partner, said Datto's new pricing model has been helpful. He said customers typically select the one-year option.
Datto's hybrid cloud technology employs an on-premises storage appliance that protects the customer's data locally. The appliance also serves to stage data transfer to the Datto cloud, which provides an additional layer of data protection. Previously, customers agreed to a certain data storage limit in the cloud and would be subject to overage fees if they went above that threshold, Saslow said. But with retention-based pricing, customers can store as much as they want in the cloud and pay a monthly, fixed fee for the service, he said. Saslow said the pricing approach makes selling the Datto service much easier.
Asigra, meanwhile, offers a Recovery License Model (RLM), which the company describes as a value-based pricing option and an alternative to per-gigabyte pricing. RLM involves two distinct licensing costs: one fixed rate for backup and one variable rate that is set each year based on the percentage of data an organization recovers over a 12-month term.
EVS' Rose said RLM brings greater fairness to pricing. In looking at the company's 200-plus business customers, she said she found that a few clients frequently call for restores and "are unfairly driving up our cost for the whole client base." Separating backup from recovery means all customers can have a low backup rate but pay a different rate depending on how often they call for recovery services.
Axcient, a Mountain View, California-based company that offers a cloud-based BDR solution, doesn't plan any significant changes to its pricing. Justin Moore, Axcient's CEO, said the company launched device-based pricing a couple of years ago, abandoning capacity-based pricing.
"We are charging per server, per laptop or per desktop," Moore said. "We don't charge for the infrastructure or the plumbing."
Axcient pursues three-week development sprints and releases new minor features monthly and major features at least quarterly, Moore said. The company works with partners that resell its cloud service.
Moore said the pricing reflects the value that the company provides: keeping critical customer systems up and running and highly available versus how much data is being stored. Even though Axcient's pricing is device-based, he said, there will be pricing pressure over the next couple of years, but he believes the company's pace of innovation will continue to "provide more value around the systems that people are storing on our platform." That approach will enable Axcient to avoid pricing wars, he added.
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