Iomega is on the way to becoming a managed service provider for channel partners with an agreement to acquire CSCI, a managed services provider catering to small and midsize businesses.
The planned acquisition, unveiled Tuesday, is valued at $11.5 million, including $4.5 million in cash and $7 million in Iomega stock with up to $1 million in future incentives. The deal is a key part of Iomega's move to "decommoditize" its business, said Thomas Kampher, COO and president of the San Diego-based storage vendor.
Iomega is looking to new areas for business as it finds itself less and less able to depend on hardware margins, Kampher said.
"We are in the processes of decommoditizing ourselves as hardware margins decrease," he said. "So we are looking at other areas in the SMB space where we can add value."
One of those areas is managed services, an area served by a number of small providers such as San Diego-based CSCI, Kampher said. However, he said, a company like Iomega can take care of a large channel base to bring order to this space.
"We feel that companies that can partner on services on a global scale can succeed," Kampher said. "The SMB space is very fragmented. But we have access to 15,000 VARs worldwide. A lot of our VARs are not big enough to offer services on their own. We want to partner with VARs and direct marketers to give them a chance to share in the revenue."
Iomega currently has a small services offering focused mainly on supporting its hardware products, along with a data recovery service for customers that need to pull data from a non-working hard drive.
CSCI was founded about 20 years ago as a local system integrator, but moved to offer security services to small and midsize businesses in the U.S. The company's flagship application, OfficeScreen, includes bundles to provide outsourced services including managed firewalls and VPNs.
CSCI revenue was about $7.5 million in 2005, and is expected to hit more than $10 million this year, Kampher said. Its customers are found all over the U.S., with a few in Europe. "Anecdotally, I believe their largest customer is in Alaska," he said.
CSCI currently offers most of its services via such partners as telcos, broadband providers, and Web hosting companies, Kampher said. "What we bring to the table is the IT channel they currently don't pursue, plus the Iomega brand and the international opportunities," he said.
Looking forward, Kampher said CSCI will form the base from which Iomega will be able to expand the range of services it offers to small and midsize businesses through the channel. "We don't offer storage as a service yet," he said. "But CSCI has the ability to add services. We can add storage, managed storage, disaster recovery, business continuity, and desktop monitoring. If storage can be a service, we are interested. We think the value of a service is more than a one-time hardware sale. And we want to do it through the channel."
Services has become a big part of the storage business as more and more solution providers look to services for future revenue streams.
A number of solution providers, such as Plymouth, Minn.-based Nexus Information Systems, are developing their own storage service offerings.
Others are partnering with existing storage service providers to bring such services to their midrange and enterprise customers, while a crop of relative startups is turning to the channel to bring services to small businesses.
The Iomega/CSCI deal is expected to close within 30 days, Kampher said.