Carbonite's New CEO Plots Future After Rejecting Acquisition Proposal
Carbonite Stays Single
Boston-based cloud data protection provider Carbonite, which just refused a two-year attempt by Los Angeles-based cloud services firm J2 Global to purchase Carbonite for $15 per share, or a total of about $404 million, plans to stay independent.
The company said revenue for the first fiscal quarter of 2015, which ended March 31, reached $33.0 million, an increase of 13 percent over the same period last year, and that total bookings for the quarter also rose 13 percent to reach $36.9 million, an increase of 13 percent year-over-year. And while GAAP loss for the quarter reached $6.2 million, up from last year's $1 million loss, the company is staking its future on what it calls its fast-growing SMB business.
Mohamad Ali, Carbonite's new president and CEO, recently sat down with CRN to discuss the company's prospects, the growth of its SMB market and channel, and its long pursuit by J2 Global.
Why did you move from HP to Carbonite?
Ali joined Carbonite in December after a two-year stint at Hewlett-Packard, where he served as chief strategy officer. He said the move stemmed from what he saw as an opportunity to take advantage of the large "hidden value" in Carbonite.
"Carbonite was going through the transition from a consumer-direct model to the SMB business with high growth and a strategy to go through the channel," he said. "But the world was still valuing Carbonite as a consumer company rather than an SMB company. We have 6,000 channel partners worldwide, mostly in North America. Now we're building our European presence, and building distribution. ... The value was hidden in the company."
How important is SMB to Carbonite?
"The SMB market now accounts for about one-third of our business, and grew about 40 percent year-over-year in the last quarter," Ali said.
"I don't think the investor base has internalized this fact," he said. "Our consumer base is still important, but it's growing at single digits. We continue to invest in it. We continue to bring out new products. We continue to explore new ways to develop the business. But the SMB business is on fire."
What is the value of Carbonite?
When he came to Carbonite, Ali said, he was surprised by a FEMA study that found that half of small business collapse after experiencing a disaster because they didn't have any business continuity solution. The rest, he said, have parts of a solution, but not a real solution.
Customers require a solution that is simple and powerful at the same time, Ali said. He cited the Carbonite Server Backup solution, which resulted from Carbonite's 2012 acquisition of Zmanda. CSB takes six steps to install, but has the fastest upload and download speeds in its category.
"Zmanda had some fairly sophisticated products," he said. "It was used to back up the International Space Station. That's not a market we serve. So we simplified it."
But what is the value of Carbonite given that so many vendors offer data protection?
Ali disputed the notion of Carbonite being a one-product company, citing its business suite, which offers endpoint, server, appliance and archiving protection capabilities.
The primary difference between Carbonite and its many competitors who offer data protection with other solutions is that Carbonite started by bringing enterprise capabilities to the SMB market, he said.
"Smaller consumer-focused competitors don't look at the SMB space," he said. "And it's hard for enterprise customers to come down to the SMB market. Symantec, to do this, would have to come down from a $4,000 product. It would be hard to meet a $799 price. And it would require a major disruption."
Why didn't Carbonite agree to an acquisition by J2 Global?
On this question, Ali passed the microphone to Carbonite CFO Anthony Folger (pictured), who told CRN that his company danced with J2 Global for a couple of years through two unsolicited bids and one hostile bid, the latter which happened on Dec. 24, 2014.
The Carbonite board of directors reviewed the offers but decided against them based on comparisons to the premiums to share prices received by other similar companies, Folger said.
"We went through heaps of due diligence with J2 and others," he said. "At the end, we felt there were no better opportunities, so we shut down the process. That process takes a toll on a company. But we're a public company. When people ask if we will never sell, we say no. We look at shareholder value."
What strategic alternatives does Carbonite have after rejecting the J2 Global bid?
Ali said Carbonite's first-quarter results demonstrate the company's strength, especially its growing SMB business. "If there's somebody out there who wants to come back and talk to us [about an acquisition], so be it," he said.
In the meantime, Carbonite is looking at its own acquisitions as one way to build its business continuity suite of products.
"The Zmanda acquisition was very successful," he said. "Our MailStore acquisition is off to a strong start. We have hired a vice president of M&A and integration who's focused on the integration side. He's done well with other companies. We will do other acquisitions."
What is still missing at Carbonite?
Ali said Carbonite's goal is to continue bringing an enterprise-grade set of features to small businesses at price points never seen before.
"If you are an enterprise, you have a variety of capabilities that are not available in smaller companies, or are not useful to them," he said. "We want to deliver elements to companies beyond backup and restore."