By Sekar Vembu, CEO of Vembu Technologies
July 23, 2010

I am writing this in response to the concerns expressed by a few partners of ours on our strategy with Vembu Home online backup service for consumers and the upcoming Vembu Pro backup service for businesses (which we plan to offer to businesses exclusively through our partners).

I want to clarify that Vembu Pro backup service is a result of many of our prospective partners expressing interest in reselling a branded backup service hosted and managed by us rather than hosting StoreGrid Service Provider Edition in their data center themselves and managing them.

Firstly, I want to state upfront that I do not like to beat around the bush to gain some PR advantage. We have no interest in succeeding by hook or crook. We want to succeed by adding true value to our partners and customers and we expect our partners to also want to succeed by adding true value to their customers.

I personally hate to make money from anyone who did not gain some value through our product and services. That is one reason I absolutely do not pitch our business to venture capitalists as I do not want to be obliged to investors and do things against my philosophy just to provide returns to them.

Let me first do a reality check on our current business model:

1) 95% of our revenues are generated by our close to 2000 partners. 90% to 95% of these partners are managed service providers who host StoreGrid in their data center infrastructure and offer a managed online backup service to their customers. Between 5% and 10% of our partners would be hosting providers who provide a backup service to their cloud hosting, managed hosting or co-location customers. I want to mention that in our current business model there is no commitment, in terms of meeting some sales targets, we expect from partners – they simply purchase licenses upfront and get a volume discount or purchase licenses as and when they add a customer to their managed backup service. We do not insist on any long term contract or anything. Our partners continue to stay with us because they see value in continuing with us and not because of any contractual obligations.

2) 80% of our partners service customers with less than 100 employees. Most of our partners act as the outsourced IT manager taking care of everything IT for their customers and most of these customers may not even have an internal IT person and fully trust the local MSP for their IT needs. It is also important to mention that we have no visibility into our partners’ customers. We do not even know who these customers are. In the last 4 years of us focusing on this business model, we have never had a situation of a customer of our partner contacting us to purchase our product directly from us. So there is no question of competing against our partners by undercutting them by directly selling to their end customers.

3) Our partners have anything between 10 and 500 customers spread equally across all sizes. 50% of our partners have converted less than 10% of their customers to StoreGrid based managed backup service and 26% say they have converted between 10% and 25% of their customers to StoreGrid based managed backup service. Though we are not exactly sure why our partners have not been able to convert more of their existing customers, I am sure our partners are doing their best to get them converted and it will just be matter of time majority of our partners’ customers are moved to StoreGrid.

4) 92% of our partners say StoreGrid as a product is either excellent or good. We have been adding several new features to the product and would continue to do so and improve the value we offer to our partners and their end customers. Hopefully, as StoreGrid evolves and matures, our partners would be able to convert more of their customers going forward.

5) On the quality of technical support too, we have been rated highly by our partners – the average rating being 4.3/5.0. I want to highlight that this is about the free technical support we provide to our partners as part of their subscription license fee we charge them. We do offer premium technical support with telephone support and guaranteed response times etc. No wonder the number of takers for that is rather small considering our basic free support is one of the best in the industry.

6) It has taken four years for us to get to 2000 partners. We have spent considerable amount of money and resources in acquiring these partners. Our success depends upon the ability of our existing partners to add more and more customers to their StoreGrid based managed backup service and our ability to add thousands of new partners every year.

We as a business have to keep looking for diversification into different market segments and drive growth with the aim for taking a leadership position in this data protection domain. Indeed we like our current business model of serving the small business customers through our dedicated channel partners. We will continue to invest and grow this market going forward. But as StoreGrid evolves, we believe we have a chance to position StoreGrid in the medium sized business segment.

Most of our ongoing strategy is based on feedback from our existing partners/customers and also some of our prospective partners and customers. Let me talk about our immediate diversification strategies and why this is not a strategy to compete with our partners or sell directly to their customers.

Why Vembu Home Online Backup Service to Consumers

Consider the fact that we have signed up close to 2000 partners in the last 4 years and that all our active partners put together have converted possibly 30,000 or more business customers to their StoreGrid based managed online backup service.

The two well-known current brand names in online backup domain, Mozy and Carbonite started off by targeting consumers and spent quite a bit of money in building a brand amongst consumers. It is a different matter that they may not be really viable, long term businesses trying to treat backup as a commodity for even business customers.

But, by lieu of building a brand amongst consumers they get lot more attention from the press, the bloggers and even amongst the MSPs than they deserve. That is the reality. We can only build a brand by focusing on the consumer market or by focusing on the large enterprises. It is not easy to build a brand by focusing on the SMB market that too through the channel.

Why is a brand important to us? It is important because it will reduce the cost of acquiring a lead for us and it will also help us convert more of our leads into partners as it will give the prospective partners more confidence in partnering with a reasonably well known brand than dealing with what may be perceived as an obscure little company.

It is a different matter that we feel we have a very good product backed up by a highly committed technical support. When it comes to signing up large number of customers or partners, a recognizable brand name definitely matters. By providing services to consumers we want to build a brand name in the cloud storage domain.

I see no reason why our MSP partners should feel threatened by our consumer focused initiative. By definition, MSPs focus on business customers who tend to outsource their IT as they see better value in an MSP managing their IT rather than themselves. The data I have provided about our partners establish that very clearly.

Of course, there are always some businesses which are confused. They may have some IT capability internally and they may look at the commodity storage services available and start comparing them with the MSP provided IT service. Either the MSP has to educate such customers about the value they bring to the table or just let the customer try the commodity service and figure it out for themselves.

For the Vembu Partners, even if we do not provide a commodity online backup services to the consumers, these businesses are going to compare the MSP services with the other competitive consumer focused commodity services anyway. The business customer who is confused and does not see the value the local MSP bring to the table is anyway lost and there is no point in MSPs trying to win them over. If someone does not see the value it is better to not win them over as a customer as it will only result in unhappy customers because of mismatched expectations.

Also, our Vembu Home backup service license agreement clearly precludes businesses from using the service. Even those business users signing up as individual consumers would have anyway signed up with a competitor. Vembu, as a business, wants to win the mind share of such business users too.

Once we win their mind share, there is a distinct possibility that they realize that commodity online services may not be all that perfect for businesses (as they are for consumers). And they may be more willing to see the value the local MSP bring to the table. When that happens we surely want to provide those businesses as a lead to our MSP partners. The modalities of how that will happen have to be worked out. We need to start somewhere and hopefully it will all work out as we plan.

Of course, there are some MSP partners who claim they also want to go after the consumer market. The same logic as business customers applies here too. If there really is a consumer need which the MSP tries to fulfill and the consumer sees value, it is fine. But if the consumer does not see the value the MSP offers, then she is anyway going to go with a commodity service. Why cannot it be Vembu? Why should Vembu give up serving that consumer and win their mind share if it can help us in some intangible way. That is what we think. Majority of our MSP partners focus on business customers.

We do not believe it is possible for the MSPs to easily offer a commodity service to consumers. If they want to do that they have to become SaaS vendors themselves by creating and owning the core IP etc. This is the reality we believe in and we need to follow a strategy based on what we believe in. Commodity consumer offering will always be part of a larger offering as it is impossible to sustain a business by only offering commodity services to consumers. It is always offered with a larger strategic goal in mind. If some MSPs want to also offer commodity services to consumers, they cannot do that simply by licensing the IP for the core services from a vendor. They have to own the IP themselves and in that case they are no longer an MSP.

Why Vembu Pro Online Backup Services

Since the time we released our StoreGrid Service Provider Edition for MSPs, we have always had prospective partners express interest in reselling a managed backup service hosted by Vembu rather than hosting it themselves and managing them. As a vendor we initially decided to be a pure software vendor as we did not want to invest in building our own data center and the associated NOC. We have always been quick to offer options to our partners including having the ability to host StoreGrid in “Infrastructure as a Cloud Service” like Amazon Web Services.

Now that we have enough experience in working with cloud computing services like Amazon Web Services we believe we now are in a position to host StoreGrid in Amazon Web Services and offer business an online backup service. The Vembu Pro online backup service will be offered exclusively through the channel. That means it is just an extension to our current business model where we license StoreGrid to our MSP partners for them to host and provide a service.

Even our existing MSP partners have a choice now. They can offer options to their customers where in the backup is done to their data center or if the customer chooses the backup can be done to the Amazon Cloud. We probably are the first serious vendor focused on the channel providing such a capability. Backing up to the Amazon Cloud, specifically the S3 infrastructure, can be such a compelling selling point to the MSPs. At least that is what we are hoping for.

As I said, Vembu Pro will be offered exclusively through the channel. And we are also putting together an SMB lead generation program through which we want to provide SMBs interested in backing up to the Amazon Web Services as leads to our partners. These are in early stages but it is just a matter of time before all these things come together. And believe me when I say Vembu Home for consumers is an important component of this whole strategy and it is not meant to compete with our partners by undercutting them.

What about StoreGrid Professional Edition – the on-premise or branch office backup solution?

Until now we have never had to face a question about our StoreGrid Professional Edition. It has been there even before the release of our Service Provider Edition. So far, we never actively marketed it. But we do get sales from businesses that is looking for a self managed on-premise backup solution or other larger businesses for consolidating their branch office backups to a centralized data center.

Though there are direct sales from businesses we also have about 50 resellers actively reselling the StoreGrid Professional Edition. We have a Channel program for that too and a few of our MSP partners also resell StoreGrid Professional Edition apart from offering an online backups service to their customers. We never really paid much attention to selling the StoreGrid Professional Edition and whatever has been happening is on its own.

We are evolving StoreGrid Professional Edition recently and we believe it is just a matter of time before we are in a position to take on the likes of Symantec Backup Exec – by offering compelling features at 1/5th or 1/10th the price. We will then actively seek resellers to push StoreGrid Professional Edition to customers who want to stick to on-premise backups.

As I said, we do have a channel program already in place which can be fine tuned and evolved based on market requirements. Here again our main strategy is to involve the channel wherever it makes sense. But there are these occasional online sales which happen across the world on its own. If ever such a sale happens because of some effort from our channel partner we will surely compensate them for that. And this is the type of guarantee I can provide the channel as of now.

We will also be seriously looking at some kind of customer registration program wherein a channel partner can register a customer with us and we then make sure any direct communication from the customer is always routed through the channel partner. We do have such a program in a small scale in India with a reseller.

I sincerely hope this long post is treated as an honest effort from our side to dispel any doubts in the minds of our partners about our ongoing strategy. I am sure there are some of our partners who are not going to be entirely happy. To them I want to say that we are as open and transparent as it can get. We say things as they are however uncomfortable the facts are.

End of the day, our long term success can only be guaranteed only if we can continuously provide value to the end customers. Any strategy which revolves around an assumption of customer ignorance cannot last long and as a company we are uncomfortable in forging any strategy based on an assumption of customer ignorance.

I am open to honest feedback and suggestions based on market reality where the internet and the social media have turned all the existing business models upside down.

The above post was written by Sekar Vembu of Vembu Technologies. Vembu Technologies is a backup software vendor whose product, StoreGrid, powers the online backup services of a large number of service providers across the globe. Besides remote backup, StoreGrid is also used for on premise backups of workstations and servers at various companies & universities.

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