Carbonite, With IPO On the Horizon, Puts New Focus on Consumers and Small Businesses

For years, Carbonite has been one of the compelling stories of the Boston-area tech scene. That story is about to get more compelling in 2011.

The online data-backup company, which launched its consumer service in 2006, has talked openly about its plans to file for an initial public offering later this year. In an in-depth profile last January, my colleague Wade wrote about Carbonite’s approach and history, as well as its broader business and marketing strategy and competition with Mozy (part of Hopkinton, MA-based storage giant EMC).

A year later, it seemed like a good time to check in with Carbonite to see how things are progressing—particularly in regard to the company’s proposed IPO, and its relatively recent move to focus on small businesses as well as consumers. The firm is led by serial entrepreneur and CEO David Friend, who co-founded five previous tech companies: ARP Instruments, Computer Pictures Corporation, Pilot Software, FaxNet, and Sonexis.

“We’re in the final stages of banker selection,” Friend told me a few weeks ago about Carbonite’s IPO progress. “We’re just marching ahead. We’re in no huge rush; we have quite a bit of money. We want to have top name bankers. We just have to continue to execute, continue to bring out new products, and expand internationally.” The prospective IPO, he says, depends mostly on Carbonite’s “ability to show we can do more of what we’re doing.”

Indeed, cash is not an issue for the company, which most recently closed a $20 million Series D venture round about a year ago, and has raised more than $67 million to date. More importantly, Carbonite has been doubling its revenue every year since 2006. The firm has about 160 employees in Boston, plus around 200 other full-time equivalents, Friend says.

Yesterday the company announced a series of promotions and hires to go along with a reorganization around its two main kinds of customers. Swami Kumaresan, formerly vice president of marketing, is now general manager of Carbonite’s consumer group, while Peter Lamson, formerly senior vice president at NameMedia, has joined Carbonite as general manager of its new small business group. And, rounding out the personnel moves, Bill Phelan from Intuit and Richard Surace from PlumChoice have joined Carbonite as vice presidents of product and services, respectively.

Carbonite’s focus on providing online backup for businesses (in addition to consumers) has grown over the past year or so. The significance of yesterday’s news is that the company’s business software has matured to the point where Carbonite needs a separate, dedicated division to sell it. And the company has matured to the point where it needs to work harder to understand its different customer groups.

Business customers already “account for a pretty significant part of our business,” said Friend, who estimated the fraction as between one-third to one-half of Carbonite’s total revenue.

Yet the online backup sector is still relatively young. A huge number of people and businesses—amounting to hundreds of millions of personal computers worldwide—still don’t back up their data in any systematic way. That is where Carbonite and other companies could see growth in the coming years. For now, Friend sees the future of the sector as a two-horse race. “Most of our competitors who tried to scale have fallen by the wayside, except for Mozy,” he says. “Most people don’t have the engineering depth. The problem for a startup these days is, how are you going to get 50 million bucks to be a serious competitor?”

On the topic of his chief competitor, he says, “Mozy is less aggressive in the consumer space than they’ve been in the past. That’s not surprising given the EMC DNA. They will continue to be successful in the business space.” He adds that Carbonite will “compete strongly” there as well, with one of its sweet spots being the “three-person dentist office.” [Disclosure: Mozy provides online backup service for Xconomy—Eds.]

Carbonite also has its eye on other expansion areas, including mobile apps and remote file access technology that lets customers access individual backed-up files over the Web from any computer. “More and more people say, ‘I don’t need to drag my computer everywhere—I can get all my files on every computer anytime, anywhere, on any device,’” Friend says. “The adoption rate of that stuff is really starting to move.”

But the overarching message I heard from Friend was that Carbonite needs to hunker down and focus on what it does well—providing fast and efficient online backup to its customers. “Our bet is just to get to be really, really excellent at what we do. That will provide us with years of runway,” he says. As for the timing of the potential IPO, all he would say is that the company is shooting for later this year.

So, in the meantime, I asked him for his top advice to other entrepreneurs, based on his vast experience with startups. “Do as much market research as you can before you get started,” Friend says. “Talk to customers before you build the product. Build something that looks and feels like a picture-perfect prototype and see what people really think of it. If they don’t like it, change it. If they like it, make it real. And if it starts to sell, worry about the scaling. Most important is to have a product that solves a real problem.”

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