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Summary:

[qi:011] With every new technology, innovation generates excitement, the excitement turns into buzz and the buzz, more often than not, gives way to a buyout in which a buyer overpays for a hot new startup — and triggers a slow deflation in the valuations of the […]

[qi:011] With every new technology, innovation generates excitement, the excitement turns into buzz and the buzz, more often than not, gives way to a buyout in which a buyer overpays for a hot new startup — and triggers a slow deflation in the valuations of the startup’s competitors.

Cisco Systems (CSCO) spent lavishly for Cerent, eBay (EBAY) opened its checkbook for Skype, and Google (GOOG) ponied up for YouTube. Now EMC Corp. (EMC) has reportedly bought American Fork, Utah-based Berkeley Data Systems, the company behind online backup service provider Mozy, for $76 million.

BDS had raised about $1.9 million in venture backing, and as of April counted some 180,000 users of the Mozy backup service. Reviews of the service — including one in our own Web Worker Daily — have been positive across the board.

The acquisition by EMC is a surprise, though as Jeff Clavier explained on our show earlier this week, it is the non-conventional buyers (in other words, not Google, Microsoft or Yahoo) that are giving web 2.0 mergers and acquisitions a nice nudge.

The rationale behind EMC buying Mozy is still unclear, however. But one suspects that it would be a key component to them going after small- and medium-sized businesses, much as SoonR is doing by shifting its focus to backup-and-restore features. And although the $76 million sticker price does seem rich, EMC can afford to be lavish: it’s sitting on a windfall generated by the VMWare (VMW) IPO.

Valuations of VoIP providers haven’t been the same since eBay’s momentary loss of rationale, and while a shakeout in online video hasn’t exactly come to pass, there is little chance of someone cutting another $1.6 billion check anytime soon. For optical hardware startups, the Cerent buyout was a top, as was the case with another Cisco purchase, Stratacom.

From that perspective, the $76 million buyout of Mozy should be a warning signal for dozens of online storage startups that are trying to get our attention. Perhaps it is time for them to start accepting whatever offers they can get — fast.

PS: If you are aware of academic studies about big buyouts and the after-market impact on competitors, do let me know.

  1. this would be a good play in SMB space and quite in line with the strong-suite of EMC in the enterprise storage realm. if anything, a small business that spends on $250 every other year on upgrading their external hard drive could be the sweet-spot customer.

    given that, $420/user isn’t that bad, given that
    – no one company dominates this market
    – emc might be looking to google and other majors as threats with their own offerings.
    – $76M isn’t really breaking EMC’s bank.
    – EMC has done well with their acquisitions in their software and services areas.

    on a separate note, did their logo look like that prior to acquisition? looks a lot like the old documentum (which EMC acquired) logo.

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  2. Is Amazon S3 about to eat EMC’s lunch? (Or late night meal)?

    Even if Amazon runs on EMC (I don’t know that), you don’t want to be disintermediated and commoditized.

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  3. Amazon S3 combined with software like Jungle Disk is certainly a compelling alternative to Mozy, but I doubt S3 will cut into EMC’s core enterprise storage business any time soon. It’s great for backup and archival but can’t compare to local high-speed storage for most uses.

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  4. [...] been marketing itself with such an attractive face that its parent company, Berkeley Data Systems, has effectively stolen the heart – or at least a quite a few million dollars – of a much…, and will now live out its future under a much grander [...]

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  5. The rationale behind EMC buying Mozy is clear….EMC is (or was) a partner Connected (now part of Iron Mountain), which MOZY considers a competitor in the enterprise market. With a proven enterprise customer in GE, EMC should be able to take MOZY into the rest of their enterprise customers (and easily make back the $76 million). This also fits well with EMC’s plan to offer SAAS to the customer base.

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  6. [...] They are spreading their wings, paying up mind you, but I like it. Here is their latest acquisition . [...]

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  7. I am a Mozy user since their beginnings. I also have the corporate version for our server installed.. It is an amazing and valuable service. i have tried all other guys out there and Mozy is hands-down the best and easy to use service.

    So, for me, as an individual and as a company, the value of the service is gold… i guess that he price paid for Mozy makes sense, and more in an era were big multimedia files are invading our harddrives…

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  8. I don’t think EMC understands the economics of online backup. They just bought a company that pays user to store that with them. That’s right. Mozy pays users to store data with them. That is fine in the startup world when you are flush with venture capital, but how long will EMC continue to pay people to use it’s consumer service?

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  9. Amazon S3 greatly undermines Mozy’s revenue model, which had been established before Amazon has made storage easy and commoditized. Companies such as DigiSense, BeInSync and others recognize that and offer superior and possible cheaper online storage to Mozy’s less-reliable datacenter.

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  10. I use both Amazon S3 and Mozy–They both have their place. At home, I pay $50/year for Mozy and store approximately 150 gigabytes of data, while I work I use JungleDisk and Amazon S3 to back up our servers. The sweet spot for Mozy is their consumer product(MozyHome) which offers unlimited storage–my 150 gigabytes would cost me around $300/year on Amazon S3. However, for corporate usage (MozyPro), that same 150 gigabytes would cost almost $1,000 per year. So, for personal usage, MozyHome is hard to beat, but for corporate usage, Amazon S3 makes the most economic sense.

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