Carbonite Eyes IPO, Aims to Be the Symantec of Online Backup

1/27/10Follow @wroush

The first thing you should know about Carbonite, the Boston-based online backup company, is that it is indeed named after the ice-like substance in which Darth Vader encased Han Solo at the end of The Empire Strikes Back. David Friend, Carbonite’s co-founder and CEO, even has a replica of the frozen Solo in his office.

But if you ask him whether there’s an intentional resonance between the idea of preserving your data online and being frozen in carbonite, the answer is not really. “That’s an added benny of the name, but my first criteria for a name are that if you say it you should be able to spell it, and the URL should be available,” Friend says. “If it means something cool that’s relevant to your product, so much the better.”

In other words, Friend is a certified nerd, but with a hard-edged, practical bent. And that’s more or less how Carbonite spins its service, too. Most PC users don’t back up their data at all, let alone on the Internet, so cloud-based storage of the type Carbonite offers is still an exotic, high-tech idea for many people. Yet Carbonite spends most of its advertising dollars buying spots on populist radio and TV talk shows hosted by the likes of Glenn Beck, Rush Limbaugh, and Rachel Maddow.

Its pitch is simple, playing to the same widely held fears about data loss or malware attacks that drive many consumers to buy anti-virus software from McAfee or Symantec. Even Carbonite’s pricing and service model—$55 per year for unlimited Internet-based backup, period—is meant to save customers from having to fuss over the details. (The company was the first to offer flat rate, all-you-can eat backup, and takes credit for converting most other backup providers, including archrival Mozy, to this model.)

David Friend

Carbonite, in other words, is a smart company with some very sophisticated technology in the back room—but it’s even more focused on the challenges of marketing that technology to a non-tech-savvy public.

Next week I plan to compare Carbonite’s backup service to Mozy, its main competition, in a detailed review. But today I want to focus more on Carbonite’s business strategy, drawing on a January 13 interview with Friend at the company’s 14th-floor offices at 177 Huntington Avenue, in the Christian Science complex. The most important takeaway from the interview was that the serial entrepreneur, who has co-founded five previous technology companies, from music-synthesizer maker ARP Instruments to Web conferencing startup Sonexis, has big plans for his sixth. If all goes according to plan, he says, Carbonite will register for an initial public offering this year and go public sometime in 2011.

That’s not because it needs the money to keep growing—revenue has doubled every year since the company launched its service in 2006, and the company still has $15 million of the $20 million Series C money it raised in late 2008 in the bank. (That’s not even counting the additional $20 million in Series D funding that it raised earlier this month.) Rather, it’s because Friend sees Carbonite as the next Boston-area tech-and-marketing company that could go really big—the next VistaPrint (NASDAQ: VPRT) or Constant Contact (NASDAQ: CTCT).

And he’s not daunted by the downsides of life in a public company: the investor scrutiny, the endless Sarbanes-Oxley compliance requirements. “It’s expensive and it’s personally risky” to go public, Friend acknowledges. “But what you get for it is access to capital at a rate that is far better than what you would get in the private markets. I’m looking forward to spending a few years running a public company—I love talking, I love road shows, I would love to get out there and pitch Carbonite to the investor community.”

Becoming a publicly traded company is also an important “branding event” for a small firm, Friend notes: “A quarter of the antivirus products on the market are actually viruses, but when you install antivirus on your PC from a McAfee or a Symantec, you don’t worry about that, because their reputation precedes them; they are public companies.”

If Carbonite isn’t yet a household name like those firms, it’s because the world is just now beginning to catch up with the company’s original idea of simple, flat-rate, unlimited backup. There were already a few online backup vendors when … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • Shaw

    I use the service as a consumer and find it easy and comforting. A friend uses it, had to draw on the backup and said the help was great

  • Sara

    As a consultant in the industry, I can tell you that the money Carbonite spends in marketing may pay off for their brand, but its clear their spending less on their backend operations. Lost data, slow upgrades, and slow restores indicate that in terms of technology, Carbonite is going with the same marketing idea: “cheap”.

    In order for a business to rely on a vendor like Carbonite, price shouldn’t be the only differentiator. Software capabilities and reliability, as well as support are also important. Without sophisticated software and hardware, the brand promise will get much weaker over-time.

    Other companies to consider for businesses are: Backup My Info!, Iron Mountain, and Evault.

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  • http://www.elephantdrive.com Mike

    Thanks for the profile – lots of useful information for understanding their growth.

    I’m curious what kind of metrics (i.e. revenues, subscriber counts) do you think they will need to execute a successful IPO?

    Also, I’m confused by the statement (or perhaps, implication) that because they have grown revenues consistently, they do not need more money. In a business like Carbonite’s, the cost of customer acquisition is likely the single biggest cost. While it may make sense in the long run, they may be operating at a loss in the early stages of a customers life – in fact, their impressive growth rate and marketing spend almost certainly requires the sort of capital they have raised (and will continue to raise). I’m not suggesting there is anything wrong with the strategy, only that I think it is probably not the case that the won’t actually need the money they’ve raised to continue the marketing and infrastructure development required to achieve the scale necessary for a legitimate IPO. Thoughts on that notion?

    Disclaimer: I’m affiliated with another company in the online backup and storage space.

  • http://www.genotrope.com tsummit

    Interesting that they are so very “old school” interruption marketing driven. I hope that they do become a home run company here in Boston. Just seems ironic that here in the hotbed of Inbound Marketing, they aren’t up to speed. Surely that will have an effect on profitability in the long term. Also, they should look over their shoulder for Dropbox. I know they think it is for nerds, but that is so wrong, just ask my mom, even she can use it.

  • http://www.xconomy.com/author/wroush/ Wade Roush

    @tsummit: Hey Tom. Yeah, my sense is that Carbonite thinks of their target market as a group that probably isn’t even using the Web enough for “inbound marketing” to be effective. But we may also see some changes coming in their advertising strategy. I will check out Dropbox, I don’t know enough about it.

    @mike: You raise an interesting question. My understanding is that Carbonite has about $35 million in the bank. I suppose they could easily spend all of that on customer acquisition (counting advertising) between now and the time of their hypothetical IPO in 2011. Which would require some careful timing.

  • David

    Carbonite has seen a lot of success but I think it’s missing features that other companies are offering. Has anyone reviewed or used Egnyte? I did their demo and was very impressed.

  • http://backupdataonline.com.au Steve

    I agree that apathy is the biggest competitor. But for the apathetic computer user online data backup services provided by the likes of carbonite is surely the easiest & most automated way to backup valuable information. Hopefully they will realise this before its too late