Why EMC Bought Mozy: A Leading Exec Provides More Insight

10/17/07Follow @bbuderi

It’s Mozy’s subscription-service business model and the opportunity it provides for EMC to extend its corporate customer base—not access to the consumer market for which Mozy is best known—that was the primary motivation for EMC (NYSE: EMC) to purchase the online backup service earlier this month.

That was the upshot of a conversation I had yesterday with Mark Lewis, who in early September was named president of the Content Management and Archiving Division, one of EMC’s four main business divisions (counting the VMware subsidary). We met at EMC’s facility in Franklin, MA, where I was attending the company’s first Innovation Conference, an effort to stimulate internal innovation that I’ll write about later this week. Lewis and I had a wide-ranging discussion, but his comments on the Mozy acquisition particularly caught my attention because it appeared to be the first time a leading company exec has explained EMC’s reasoning to the press outside of a prepared statement.

First, the background. Hopkinton, MA-based EMC announced on October 4 that it had acquired Berkeley Data Systems, a privately held Utah company that operates Mozy, an online-backup service for PC and Mac desktop personal computers and laptops, as well as for small Windows servers. Terms of the deal weren’t disclosed. However, the blog TechCrunch, which had broken the news of the impending acquisition a few weeks earlier, pegged the price at $76 million. That’s a seemingly whopping figure for a small firm that mainly targets home consumers, and observers wondered why enterprise-oriented EMC would bother.

The official EMC statement, though, made this point: “Mozy’s technology and online delivery model has proven itself to be one of the industry’s most admired offerings for customers looking to safely and cost-effectively backup and recover their digital information stored on desktops, laptops, and remote office servers.” That was the quote from Tom Heiser, a SVP in EMC’s Corporate Development and New Ventures group.

Focus on the word “model,” and also the phrase about “desktops, laptops, and remote office servers.” Because those are the key things Lewis drew out, both in our chat and in the few remarks he made on the subject in his keynote address to about 400 EMC employees at the Innovation Conference.

“We want to be the disruptive company in IT,” he said in his talk. One way to achieve that goal is through new business models that provide sustainable advantage over time. And that, he said, was key to the Mozy acquisition.

“Why would we spend that kind of money for a little company in Salt Lake that is driving not all that much revenue and basically backing up my home PC?” he asked. Well, the answer, he said, lay in Mozy’s low-cost “software as a service” (SaaS) business model.

More background on that: Mozy’s service lets customers download a small desktop application onto their computers’ hard drives; the application monitors key files or folders and automatically uploads copies to Mozy’s servers at pre-scheduled times. TechCrunch called it “a dead simple way for users to back up their computer hard drives online.”

Back to Lewis. I asked him more when we sat down one-on-one. Yes, he confirmed, Mozy was attractive because it targets a new market for EMC—the home consumer. And that was good. “Mozy can start to built us a footprint in the home,” he said.

But that was only part of the story, and not the main reason for EMC’s interest. “What people might not realize is it’s a very efficient backup tool” for businesses as well, Lewis said. “Is Mozy for PC backup? Absolutely. But it doesn’t matter whether those PCs sit in a Fortune 500 company or my house.” And by marketing Mozy’s easy-backup and subscription model to more businesses—especially small- and medium-sized businesses that might not be able to afford EMC’s enterprise offerings—the company can “leverage that same technology,” he said. (Note: GigaOm speculated along this line as well.)

Indeed, another thing that people might not realize is that in December, Mozy offered its first business product, MozyPro, as a counterpart to its popular MozyHome service. Already, says an EMC spokesman who sat in on our conversation, Mozy counts some 8,500 business customers in addition to its 300,000 customers. The largest of these is GE, which signed a big contract in April for Mozy to back up all 350,000 desktops and laptops across the company. That deal offered another compelling reason for EMC to purchase Berkeley Data Systems.

EMC has a long and overall extremely successful record of assimilating its acquisitions: think RSA Security or Documentum. For at least the time being it plans to let Mozy operate largely independently. But the fit looks nice, and it seems safe to say that EMC might see even $76 million, if that’s the right price, as a bargain.

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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  • http://www.carbonite.com David Friend

    I’m the CEO of Carbonite, Mozy’s long-time competitor. I think EMC made a very smart move acquiring Mozy. It’s a good product. More importantly, the timing may turn out to be perfect. Online backup is just starting to explode. People are starting to realize that losing a hard drive is a much bigger threat to your data today than viruses. In a few years, there could be a hundred million users backing up their PCs over the Internet. If that’s the case, the top three or four companies in the field will be comparable in size to the top anti-virus companies and the $76 million will look like a very sagatious decision.

    David Friend, CEO
    Carbonite, Inc.
    Carbonite Online Backup

  • Trip

    Hi David,

    1.5 years does not a long-time competitor make. But I think you are correct that online backup will ramp up (explode may be a bit of overstatement).

    Sagatious?? Sagacious??

    *sigh*

  • Mike

    Hey Trip,

    “Does not a long-time competitor make,” sounds like something Yoda would say. Certainly we aren’t living in those times!

  • http://www.ElephantDrive.com Michael Fisher

    Disclaimer: I work at ElephantDrive, which also provides online backup and storage services.

    I think EMC will have challenges re-positioning its brand as a consumer/SMB service, but adding a product like Mozy to their quiver is certainly a step in the right direction. The trends supporting adoption are quite clear.

    I think the interesting question is: why Mozy and not some other service?

    I think the answer lies not in their model, which has certainly proven very effective, but rather in their technology which was uniquely valuable to EMC. Mozy’s CEO, Josh Coates, is a veteran of the enterprise storage space, and he’s developed his own system for redundant block-level disk allocation based on Reed-Solomon encoding. This is really interesting technology, especially to a company like EMC. What’s strange is that it is not really interesting in the context of online backup and storage – that is, it doesn’t seem to provide any clear advantage to the service offering (other than at best a marginal contribution to capital outlays for disks). However, if you are in the business of selling managed arrays (as EMC is), this might prove very useful.

    Regardless, I believe that EMC has made a great decision and gotten a bargain. It remains to be seen whether other established technology players will look to make similar acquisitions, and how they will evaluate the remaining online backup and storage providers.

    ElephantDrive is focused on speed and performance, devoting efforts to improving the efficiency of transfer and leveraging a mix of storage-as-a-service and physical media.

    Other players are entering the space, but are finding out how challenging it can be to scale massively. We’ll have to wait and see whether a handful can emerge as dominant, independent players in the space…

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