Car insurance companies reward good drivers with lower rates, offering customers the option of placing a telematics device in their cars to record performance metrics from the road. Drivers who don't frequently slam on the brakes pay lower premiums than drivers who do.
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Cloud backup and recovery software vendor Asigra is trying to implement a similar system with data recovery prices. Its new licensing model enables cloud providers to offer customers a separate, variable rate for recovery services based on the amount of data they recover over a year. It's a significant departure from how providers typically sell backup and recovery services -- a fixed rate for both services based solely on the amount of data that is backed up.
It's either going to be the next big thing everyone is doing or it could totally flop.
Rachel A. Dines,
senior analyst, Forrester Research
"It's either going to be the next big thing everyone is doing or it could totally flop," said Rachel A. Dines, a senior analyst at Cambridge, Mass.-based Forrester Research Inc. "It's definitely pretty radical."
Under conventional licensing models, an enterprise pays the same monthly rate regardless of whether it recovers 3% of its data or 18% of it. That's because the price reflects the amount of data backed up -- not what's recovered. But as data grows at a rapid pace, the market is crying out for a fairer pricing model, said Eran Farajun, senior vice president at Toronto-based Asigra.
"It's like television. If you have cable, you might have 400 to 500 channels, and you can watch them 24 hours a day, but nobody watches them 24 hours a day," he said. "It's the same thing in the world of backup. Customers are paying today to recover 100% of their data, but nobody recovers 100% of their data."
Data growth demands new model
Whether or not Asigra's new Recovery License Model prevails, cloud backup and data recovery pricing needs to change somehow. The amount of data enterprises store is growing 40% year-over-year and more aggressively in the backup space, said Dines, noting in a recent blog post that data is growing at an "insane" pace.
I am sold on the concept, and I'm excited they're introducing this change to the market.
Gayle S. Rose,
founder and CEO, Electronic Vaulting Services
"Capacity always increases," said Steve Duplessie, founder and senior analyst of Milford, Mass.-based Enterprise Strategy Group (ESG). "The existing models guarantee [customers] will pay more because [they] will need to back up more capacity."
The result: Customers are pressuring cloud providers to continually lower their prices. But when faced with the choice of losing customers or accepting slimmer profit margins, many cloud providers see the latter as the lesser evil. It's why backup and data recovery prices have fallen from $10 per gigabyte in 2007 to less than a dollar per gigabyte today, said Gayle S. Rose, founder and CEO of Electronic Vaulting Services (EVS), a Memphis-based cloud backup and disaster recovery (DR) provider that has built its services on Asigra's platform.
"There comes a point in time when the cost is intolerable and [clients] will leave," she said. "Whatever impacts our clients definitely impacts the market."
Although cloud providers weren't explicitly asking for the model Asigra has introduced, they have been demanding a solution to falling prices, Farajun said.
"There's a race to the bottom because of the growth of data," he said. "It's not healthy. People are going to go out of business, so we have to change the way we price."
How Asigra's new licensing model works
Asigra calculates what it calls a "recovery performance score" for each cloud provider's customer, using tracking software to measure the percentage of backup data a customer recovers over a year. Clients receive a score between zero and 10, with a "10" recovering the lowest percentage of data (5% or less), and costing the provider $0.167 per GB of recovery per month in licensing fees. At the other end, a "zero" recovers 25% or more of a customer's data and costs the provider $0.50 per GB of recovery per month in licensing fees.
The percentage is based on the cumulative amount of data recovered over the 12-month term. Customers are never charged for more than 25%, but to maintain its own profitability, Asigra also charges for a minimum of 5% of total data recovered.
For the first six months, the customer automatically receives a 10, the worst rating. Asigra adjusts the recovery performance score at the 12-month mark to reflect actual performance. Thereafter, the score is re-evaluated every 12 months. In the interest of fairness, Farajun said, Asigra's calculation excludes the single largest recovery event a customer experiences over a 12-month period.
The software also includes Asigra Recovery Tracker, an analytics engine that cloud providers can use to produce reports for each customer. The tool reports the number of recoveries performed per year, the amount of data recovered, source of the data loss and reason for recovery. That kind of information not only helps providers strengthen customer relationships, but it also helps them to internally get a better picture of their risk pool, said EVS' Rose.
Data recovery prices based on usage: Innovative or extreme?
ESG'S Duplessie called Asigra's new model "revolutionary" because it is the first to underscore the value of recovery. With the right marketing, cloud providers can expect customers to "quickly become smart" about the benefits of this model, he said.
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"Paying for recovery makes much more sense, and it means [customers] can pay less as [they] get better," Duplessie said.
But in a market where customers hold the predictability of pricing in high regard, Forrester's Dines was more skeptical.
"It's going to be a bit too 'out there,' in my opinion, for consumers of backup services," she said. "This model is going to be one providers will like and the consumers will not like very much because … consumers can't control how many restores they have to do and how often."
EVS' Rose and her executive team have begun to study how it might affect their cloud backup and DR services business in terms of sales strategy and technology demands. She has specific concerns about how to best transition existing customers to it, as well as how the new model eliminates the separate, lower price for archived data that Asigra offered under the old model.
"I am sold on the concept, and I'm excited they're introducing this change to the market," Rose said. "We are just tasked with being really smart with how we go about rolling it out."