Online Backup Pricing: Is a $59/year customer worth $55 to acquire?

When you see execution that doesn’t make sense, it’s natural to think that it’s the product of poor thinking, but I have found over the years that each person and organization lives in a reality different than mine, and that one man’s stupid is another’s smart. So I am not going to say that the recent moves on Carbonite’s IPO are stupid, but I will admit I don’t understand them.

Carbonite’s recent comments about customer acquisition costs, disclosed during their IPO, are roughly $55 per customer, each of which brings in $59 a year, and on average stays with Carbonite 5 years, according to Reuters recent article. However, a more deep look directly at the IPO filing shows Carbonite’s extremely high cost of customer acquisition, pegged at $91.68.

Online Backup Speculation?

Basically if Carbonite hadn’t spent investor’s money, and now the market’s money, they could not provide backup at their current price points, which means there’s a speculator of sorts in the online backup market, driving prices below what’s sustainable and good for the market.

After the IPO completed, many wondered aloud why Carbonite went forward when instead of raising $122m as projected, they had to settle for $62.5m. CNET (and others) opined that “. . .if

[Carbonite] didn’t go public now and raise what money it could, it wouldn’t have been around to go public later. . .” Carbonite has lost money every quarter since it was funded, and spends a huge amount on acquiring customers.

So if they’re spending so much on customer acquisition, operating for 5+ years at a loss, then going to the IPO market in a firestorm to get another cash infusion, what does that tell us?

Carbonite’s Prices are too Low.

Well, there are probably hundreds of other conclusions, but that’s mine: they need to charge 2-3x to make enough money to cover losses and actually be a company that I would invest in.

Your customers should be nervous if you are as cheap as Carbonite.

In a recent post on MSP Online Backup Pricing, I covered a few reasons why you should charge more than these commodity rates for even the simplest of online backup services without support, and the recent news after the IPO only makes that more clear: having a company “safeguard” your data when they are not profitable may not be the best choice for real data security.

Remember, price according to value, and educate your customers!