BackupReview.info Interviews David Friend, CEO, Carbonite Online Backup

This is an exclusive interview conducted by Backup Review (here on referred as “BR”) with David Friend (here on referred as “DF”), CEO of Carbonite.

David Friend, CEO, Carbonite.com

BR: Please give us some background information about your company, such as how it was founded, by who, how long you have been around, where your headquarters are, how many branch offices you have etc.

DF: Carbonite was founded by myself and Jeff Flowers (CTO) in the fall of 2005. Together, we have co-founded four previous businesses: Computer Pictures, Pilot Software, FaxNet, and Sonexis. As always, we’re headquartered in downtown Boston. Jeff and I founded Carbonite because there wasn’t really an online backup solution on the market that was designed from the ground up for consumers (rather than businesses). It is a fresh look at backup and is not derivative from big IT backup products that have been around for years. We found that consumers didn’t want a lot of features and new things to learn – they just wanted their data to be safe. So we wanted to build a backup solution that was so simple that all you needed to do was enter your email address and create a password. Everything else is automatic.

BR: Is your customer base mainly in US or do you have substantial international presence as well?

DF: About 20% of our customers today are from Europe and Asia. We recently signed a distribution agreement with Softbank in Japan, so we expect that percentage to increase substantially in the next year. Eventually we expect at least half of our business to come from overseas.

BR: How many employees do you have and how big is your R&D department?
DF: There are 34 employees in the company today, and about 25 of them are in engineering
and QA.

BR: What are your best selling products and services and why are they selling so well?
DF: We only have one product: Carbonite Online Backup. Revenues have been climbing at a 40% month over month rate since December. We’ve also gotten great reviews in the press. What people really like about Carbonite is its simplicity. We don’t have any limits on the amount of data you can back up, so there is no need to select what you do and don’t want to back up – by default we just back up all the user’s data. You don’t need to schedule carbonite’s backups – Carbonite just works all the time in the background – it’s very good at staying out of your way when you’re using your computer so it never slows things down. And it’s inexpensive – just $49.95 per year.

BR: What makes your company and its services different from others?
DF: Ease-of-use is certainly the biggest difference. Most other online backup products have way too many things for the average consumer to learn – new interfaces for choosing what to back up, scheduling, complicated data restore procedures, and so forth. Carbonite is like an insurance policy – there’s no set up, nothing to learn, nothing to do. If you ever need to restore your data, it’s literally one mouse click away.

BR: One of the biggest concerns of online backup users is data security and privacy. How have you addressed these issues?
DF: All data is encrypted before it leaves your PC, of course, and communications between the PC and our data center is over an SSL link. Passwords are encrypted and stored on a server that can only be accessed by two Carbonite employees. Beyond the technical answer, however, is the marketing answer: Carbonite has passed the “trusted” test with leading marketing partners such as Microsoft Money, WinZip, Smith Micro, Corel, and retail partners like Staples, CompUSA, and Amazon.

BR: What kind of growth rate have you been experiencing? And what is your expected growth rate for the next few years?
DF: Carbonite has been growing approximately 30% month over month since last fall. Unlike other backup vendors, who have limited capacity “free forever” users, all of Carbonite’s users are paying subscribers.

BR: How has the online backup business evolved in the last few years, and how do you see it further evolving?
DF: Now that most people have broadband, we believe that most people will eventually be backing up their PCs over the Internet. Other backup solutions, such as burning CDs or external hard drives, have not proven to be very popular because of cost, nuisance factor, and lack of effectiveness – in the event of theft, fire, or other disasters, these backups are likely to disappear along with the originals. Online backup is starting to take off now because bandwidth and storage costs continue to plummet, and more and more of our lives are on our PCs. Online backup, for us at least, is like an insurance policy for your
data.

BR: Whom do you consider your main competitors?
There is a very long list of companies in this market, including xDrive, iBackup, SpareBackup, Swapdrive, and dozens of other.

BR: Large companies such as Microsoft and major telco’s have started offering online backup business. Do you fear them? How do you plan to compete against such formidable adversaries?
DF: When Microsoft Money wanted to package an online backup service with their product, they chose Carbonite over Microsoft’s own service. We think the online backup market will evolve similarly to the anti-virus market. Norton, McAfee, Trend Micro, and many other vendors were able to build billions of dollars of value before Microsoft even focused on competing in that market, and it is still to be seen whether Microsoft can be a viable player in the virus protection market. Telcos are not known for in-house development and will probably partner with Carbonite or other vendors.

BR: There has been quite a bit of M&A activity in the industry lately (such as XDrive being acquired by AOL, Microsoft acquiring Foldershare and LiveVault by Iron Mountain, and Evault by Seagate). What is your strategy? (being acquired, IPO, etc…)
DF: Our intention is to go public in 3 years.

BR: Are there any new products/services you are developing that will soon be available?
DF: No.

BR: What is your opinion about Google entering the online backup business? Do you feel that Google will dominate the market?
DF: No, we do not believe Google is a near-term threat. Online backup is a very expensive service to give away (compared say, with weather, email, or stock quotes) and Google has not demonstrated an ability to execute a subscription revenue business model.

BR: What is your annual revenue?
DF: We do not disclose this.

BR: How does your proprietary technology compare to the proprietary technology of main competitors?
DF: We don’t know what proprietary technologies our competitors use. Carbonite’s goal is always to be the low-cost provider in online backup.

BR: What is the most regrettable mistake that you or your company made in the past? How would you handle that mistake if you got a second chance?
DF: No regrets yet.

BR: In the future, say five years from now, do you think the cost of online backup will remain as today or will it go significantly cheaper (For example to backup a 1 GB file)?
DF: We don’t think that pricing by the gigabyte has a future – customers want unlimited pricing plans like Carbonite’s. The amount of data that customers have on their PCs are rising as their photo albums, music collections, and other data accumulates. Cost of storage is coming down at a similar rate, so we expect pricing to be relatively constant. Over the past 10 years, the pricing of virus protection software, such as Norton and McAfee, has stayed constant. The leading brands will stay relatively stable and new market entrants will probably try to capture share by under pricing the market leaders.

BR: How many subscribers do you have? What is the amount of file you backed up in your servers?
DF: We do not release that kind of information for obvious reasons, but I will say that Carbonite passed 1 Pedabyte of online storage many months ago. (1 Pedabyte is 1,000,000 gigabytes)

BR: What do you see as the greatest challenges facing your company today? And what are your biggest accomplishments so far?
DF: The challenge for us will be coping with the enormous growth in our user base. Such rapid growth puts enormous management strains on any company. But our growth is our biggest accomplishment and the daily “fan mail” we get from users whose data we’ve saved testifies to the ease of use and quality of the Carbonite service.

BR: What are the key competing technologies and what are some of the advantages you offer over the competition?
DF: Carbonite has no real unique interface – we integrate tightly with Windows. For example, Carbonite puts little green dots on any folder and file that is already backed up and little yellow dots on files that are waiting to be backed up. This patent-pending technology means that users don’t need to learn anything new – they use what they already know.

BR: Can you tell us about your servers? Where they are located, how many backups you perform, if server room is controlled for humidity, temperature and what kind of backup generation system you use?
DF: Carbonite’s servers are all colocated at major Internet peering points where there is simultaneous access to a dozen or more Internet backbones. Such facilities always have the highest standards for climate control, backup power, and so forth.

BR: Any other news about your company you care to share?
DF: Nope.

BR: Now we know about you, we want to ask you about us. As you know, BR is the ONLY website providing information about online backup and storage, and that ranks the top 25 online backup companies on a monthly basis. We have close to 400 online backup companies listed in our directory. How can we improve BR’s website?
DF: Don’t think “features” when you look at backup. A good backup product should be like an insurance policy – the fewer features the better. Think about how many mouse clicks it takes to get the product installed and working rather than whether the product has “features” that most consumers don’t need or understand. Go out to your local CompUSA on a Saturday and talk to the people who are in there buying computers and think about what those people want out of a backup service, as opposed to the technically sophisticated users who probably visit your web site. You’ll quickly see why Carbonite with its “no features” approach is doing so well.

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