The Role of the Vendor in a Backup-as-a-Service Provider’s Success

Oct 2011
6

The Role of the Vendor in a Backup-as-a-Service Provider’s Success

Posted by Quentin Stossel
 

Managed Service providers and IT professionals alike are looking at the current landscape of the Cloud Backup marketplace, seeing the growth and wanting to get in on the action. And for those who aren’t looking, there is no shortage of sales representatives from various vendors calling to pitch the benefits of offering cloud backup services to their customers.

There is serious potential in offering a cloud backup service. Here are some of the key reasons:

  1. The marketing is being done for you. With all the hype, it’s hard for a prospective customer not to know or possibly be interested in cloud backup.
  2. There are so many customer segments to go after: Large enterprises, small business, Consumer users, and let’s not forget specializing in verticals such as healthcare or legal.
  3. Natural disasters seem to be on the rise, making customers more willing to buy.
  4. Data grows and given that billing is based on volume of data protected, this means more business every year by default.

So this begs the question as to why cloud backup service providers aren’t posting monthly recurring incomes of the five-digit range? Why do so many top out at less than $5000 per month income.  One of the primary reasons is that some service providers don’t focus on backup – in fact they hate that they have to do it.  However, losing customers to competitors isn’t a part of the business plan, so they perform to the bare minimum. The secondary reason why service providers can’t get this income where they want it to be has to do with their relationship with their service provider.

Let’s look at what such relationships look like:

  1. The vendor offers very little sales and marketing support. In many cases, service providers need help with understanding what kind of customers are most profitable, how to appear more attractive to those customers and ultimately how close those customers. 
  2. The vendor does very little in the form of hands on business planning and coaching.  This is probably the biggest reason for a service provider’s lack of success.  They are not at all in sync with their vendor – the vendor doesn’t know what the service provider is hoping to achieve and therefore doesn’t help them to do so. A good vendor-service provider relationship usually means a minimum of two hours of voice time a month, plus emails etc.  A good relationship means the service provider has one point of contact inside of the vendor and that contact person knows and understands the service provider from having directly worked wutgh them.
  3. The vendor competes with the service provider. Any sizeable deal that the service provider comes across will almost always be lost to the vendor who can win on price and credibility of having built the software in the first place.
  4. The vendor does very little to teach the service provider how to leverage their technology to control costs while scaling.  It doesn’t help to grow revenues from $10,000 to $20,000/month if your net income only grows from $5,000 to $7,000/month. It’s an awful lot more risk to take on for just an extra $2000.  But this is a very common problem when scaling. And many service providers would opt to take on less risk for making marginally less net income.

At the end of the day, the Backup-as-a-Service is a fast growing market opportunity.  There are new service providers entering the market every day and competing for marketshare.  If you’re not working to grow and protect your piece of the pie, someone else will come along and take it from you.  As a service provider, ask yourself what your vendor is really doing to help you fortify and grow your position in the market.  

Spice IT Email Post

Hey Nino, Interesting

Hey Nino,

Interesting comment. In fact, I mostly agree with you. Offering backup-as-a-service where you manage your own back end (either with your own hardware or through an IaaS Platform) is a serious undertaking. It will definitely add a workload as you pointed out:
1. Offer and sell to customer
2. Implement and set it up
3. Managing the back-end servers and storage

Here's where I disagree with you, though. You say the profit margins are too low and storage is too expensive. Well, yes, storage is expensive but you can reduce your risk in this business by storing on a good utility priced IaaS platform (pay-as-you-grow). It doesn't mean your monthly storage cost will be cheaper, but the upside is you don't start out burdened with a 15K+ debt for a server and storage box. Now as for profit margins being too low. This is often the result of a service provider not understanding their competition, i.e. they offer a service sophisticated enough for mid-market law firms, but they sell to 10 seat small businesses, wondering why they are losing deals or having to lower their price to a point where it eats into their margins.

The key is to decide where you're going to play in this market, who you're going to sell to, what value you're going to add, and how much you will charge for it. In an industry as big as what cloud backup is, it is ludicrous to suggest that profit margins are too low - you just need to figure out where you want to play in the market and align your technology sophistication and expenses accordingly...

And a good vendor should help you with that.

This is all true, but there

This is all true, but there are some things which are more important. For instance, why do you think only some of them earn $5000 on it and they act like they hate it? First, they needed to offer and sell it to customer. Afterwards, they needed to implement it and set it up. And last, they need to take care about it...
If you ask me, profit margins are too low and storage per GB is to expensive, so it`s not worth of risk and work involved.

thx

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