I think if you consider the increase in assets (total value of the # of servers, racks, network gear etc) from the purchase of hardware to accommodate that growth, in order to satisfy those revenues and future revenues, it makes sense. It is entirely intentional and desirable for any gross margins to go fully back into growth or assets to support growth - especially in the cloud game where infrastructure costs and R&D are high and front-loaded. Once you purchase a hard drive and place it in a network-connected server, it will cost a few pennies each month to keep it spinning while it will generate revenue for 5 years (or more) after. You can see this by looking at reported Total Assets increasing from $38M in 2019 to $54M in 2020. That is after depreciation mark-down of <2020 equipment which is typically very high for IT equipment (upwards of 33% per year of the original value). The increase in annual revenue over time from previous cohorts is very attractive and shows that customers do appreciate the cost effectiveness and quality of service compared to other offerings.
If you consider they bought & added, net of depreciation, about $16M of assets to their balance sheet in 2020, the loss of 6M doesn't seem terrible. Using the bean counter approach - no new marketing, no spending on growth, no unnecessary R&D - they could have cleared about $20-25M of ebit in 2020.
Deciding to use your gross profit to fuel further growth (especially considering they're compounding it at a healthy rate and doing so without giving up equity or interest) is a wise move. If anything, it probably would have made sense to take some debt or finance more of the hardware purchases early on (as I see they are doing now at some scale as of 2020) in order to put those proceeds towards customer growth.
The only thing I see which is a marginal concern with these numbers is that it's difficult to see the split between marketing spend on b2 customers and backup customers (They spent $8M in 2019 on sales and marketing to generate 42k new customers, and $11.9M in 2020 to add 40k). It is very possible and likely that those marketing dollars went towards new enterprise customers (on b2 storage vs backup) and the revenue-per-customer number increasing during that timeframe seems to support that. Are blog posts calculated in the sales/marketing spend? Seems lots of the customers came from the organic content play.
Very cool to see the company who's free blog post about which harddrives are most reliable (when some had >5% annual failure rate and others <1% for the same price) nearly 10 years ago come around to s1.
Thank you for the very insightful accounting perspective. I have a hard time understanding all the complexities of modern account and how a "loss" isn't always a loss.
On a side note, I'm a very happy Backblaze customer and the same time curse Dropbox for not offering a 100GB $5/mn plan. Backblaze pricing is very customer friendly.
I tried Backblaze but couldn't get over its insistence on first backing up my entire primary hard drive instead of allowing me to simply choose directly my most important files in my external drives, or from wherever I prefer. Seems arbitrarily forceful to me, though the pricing and security options are good. Also, the interface of deselecting things to not back up via exclusions, instead of simply being able to specifically select what you WANT to back up is absurd, it complicates things unnecessarily if out of dozens of folders, you only want to select a few essentials for cloud storage.
As far as pricing goes, $5 per month for 100GB seems steep. SpiderOak offers 400GB for less than that and so does Nordlocker (though Nord has its own problems). On the other hand, iDrive has been offering a whopping 5 terabytes for a whole year for just $3.98 in a deal I saw just a few days ago.
Overall, zero knowledge backup is the best route, Backblaze plays at that, on the other hand I wouldn't touch any backup offering by Google with a 10 meter cattle prod. Grotesque that they reserve the right to snoop right through your files unless you first encrypt them externally via third party apps.
You are not forced to backup your entire hard-drive. There is a 3rd party program called: rclone
That program let's you choose which files/directories get copied over to BackBlaze.
We have 150+TB (+10TB/week) stored at BackBlaze and I use rclone exclusively to upload our content for backup.
Note, it's a CLI program that works on Linux/BSD. I'm not aware of any other platforms that it works on.
I think the parent post is about the PC Backblaze backup service, not B2. The PC backup service does backup everything, and part of the reason for that is to make it extremely easy to setup. If they allowed selection of what to backup, it would be another user interface, more documentation, and then if the user deselected something important, they'd be mad if they had a problem and something wasn't backed up. Since it doesn't affect the flat-rate price, it's easier just to back up everything.
Noted, but Backblaze's insistence on "simplicity" by obligating a full main drive backup so that users can't later complain that something was missed is silly. Why not just offer this as a default but also offer the choice of creating your own completely custom backup selections, you know, on the assumption that some users of the service might actually know what they want and how to select it.
If you want to get hired by them, propose it, get it approved, implement and test this 2nd code path, and maintain it for foreseeable futures, go right ahead.
Idk about on first run, but I'm pretty sure you can pick and choose which drives it scans, including boot drive, and set up excludes as needed (handy to avoid backing up .git or node_modules)
As far as I know, Backblaze lets you exclude folders from accessory drives and so forth, but not from the main PC drive itself. Also, the selection by exclusion itself is deeply annoying, because, as I said above, if out of many folders you only want to back up a few, selecting just those would be much easier and more intuitive than deselecting a whole pile of them to only leave a few. This was a deal breaker for me.
Furthermore, in response to the comment above, my reference was to using Backblaze alone and with Windows, as many people without any technical knowledge of computers at all might use it. Having to add in the use of Linux or rclone would mean a very different use case from the usual.
This is the exact reason why I didn't use backblaze, that and their linux support. I didn't want my entire PC backed up, and wanted to hand select a few hefty folders.
This is core part of their business model. They can provide unlimited backup capacity, because you can only use them to backup stuff from drives that are connected to your computer. So this effectively limits your storage space.
Unfortunately services where you can backup whatever files for fixed price attract "data hoarders" - people who are storing data just for the sake of storing it.
At some point, I'd imagine it's an optimization problem between (cost of failure) vs (liquidation value) vs (revenue per GB), where running them all the way into the dirt doesn't make sense. Or maybe it does?
But this is a SaaS, working with recurring revenue.
Some metrics to consider are:
- Cost of Customer Acquisition
- Lifetime Value
They could spend 200$ to get an average customer, but they will renew their subscription for an average of 5 years and generate over 2000$ in revenue during that time.
As long as you keep track of these metrics you know you're in a good direction or digging yourself a hole.
Besides other costs R&D, Admin, Marketing and Sales can be scaled up and down as needed, and become a smaller part of the costs as the company grows.
Its probably because they don't have great customer service. So they keep losing customers. And as we know, its much more expensive to get a new customer than keep a current customer - even more so with Backblaze where the initial startup charge is large due to them uploading everything.
They don't even need to keep the hard drive spinning since there are no guarantees of immediate access. They can keep them off and spin them up when you need to download a backup.
Regardless, there is a cost associated with having that harddrive (on or not) sitting in a server in a datacenter with air conditioning and resilient power. My point was not accurate to the exact operating cost per drive, but if you want that, here it is:
1) 2.5kWh per month of drive-on power. Datacenter grade power: 30-40c/kWh normalized =~ $1.00 in power per drive.
2) 60 drives per 4U space. 10 storage pods per 1 rack. 600 drives per rack. full rack in a colocation facility: $250-$500 =~ $0.40-0.80 in physical space.
Total cost per year to keep that drive up is, very ballpark, $16-22. The cost of running the drive is minimal vs the initial cost of $500 for the drive and storage server/rack/installation/network equipment etc. Network costs to transfer data from/to that drive are obviously nontrivial but again, the majority of the hurdle is outlay for capital.
If you consider they bought & added, net of depreciation, about $16M of assets to their balance sheet in 2020, the loss of 6M doesn't seem terrible. Using the bean counter approach - no new marketing, no spending on growth, no unnecessary R&D - they could have cleared about $20-25M of ebit in 2020.
Deciding to use your gross profit to fuel further growth (especially considering they're compounding it at a healthy rate and doing so without giving up equity or interest) is a wise move. If anything, it probably would have made sense to take some debt or finance more of the hardware purchases early on (as I see they are doing now at some scale as of 2020) in order to put those proceeds towards customer growth.
The only thing I see which is a marginal concern with these numbers is that it's difficult to see the split between marketing spend on b2 customers and backup customers (They spent $8M in 2019 on sales and marketing to generate 42k new customers, and $11.9M in 2020 to add 40k). It is very possible and likely that those marketing dollars went towards new enterprise customers (on b2 storage vs backup) and the revenue-per-customer number increasing during that timeframe seems to support that. Are blog posts calculated in the sales/marketing spend? Seems lots of the customers came from the organic content play.
Very cool to see the company who's free blog post about which harddrives are most reliable (when some had >5% annual failure rate and others <1% for the same price) nearly 10 years ago come around to s1.