Iron Mountain plans to either sell or shutter its digital archiving, eDiscovery and online backup and recovery solutions. Why?
Investors driving management
IM has been under pressure from a couple of funds that invested in the company and want board representation. The investors see a company that has built a national brand in a traditionally fragmented industry, but whose results have been hurt by – among other projects – its digital storage business.
As one them said in an SEC filing:
Management has done a commendable job building the Company’s North American Physical business, which currently represents 69% of 2010 Revenues and 86% of 2010 OIBDA. This business has an industry-leading market position, 44% margins and a sustainable, recurring revenue stream. . . .
Over the last decade, the Company has spent $2.7bn on its weak International Physical and ailing Worldwide Digital businesses, neither of which has come close to earning the margins or returns on capital of the North American Physical business. . . .
To us it hardly seems surprising that IRM is not competitively positioned against technology titans like EMC or Google in the digital marketplace.
(emphasis added) (OIBDA=operating income before depreciation & adjustments)
Update: Well, that didn’t take long. According to wide-awake reader Dave – see comments – IM has reached a “definitive agreement” to sell its digital business. Note to new owners: good luck! End update.
A long and winding road
IM acquired a developer of PC data protection, Connected, in November 2004. Since then they’ve bought LiveVault, DigiGuard, Anamnis, Accutrac, RMS Services, Stratify and, a year ago, Mimosa Systems.
In all, IM spent hundreds of millions on software companies. And, evidently, they spent a lot more on hardware: in a 2002 press release from EMC, IM’s CIO notes
. . . the advanced architecture of EMC systems and software makes it cost-efficient to grow our information infrastructure. Our EMC information storage capacity has nearly tripled in the past three years, yet the costs associated with managing this information have essentially stayed the same. . . .
For their Digital Archives division, EMC Celerra networked-attached storage systems will provide a high availability environment for Iron Mountain’s File Shares and Home Services.
Today’s commodity scale-out storage was only in the planning stages in 2002. But selecting EMC – a premium-priced provider – suggests that IM got off on the wrong foot and never recovered.
Pricing tells a tale
Looking at IM’s pricing is suggestive. They were charging a minimum of $0.35/GB/mo for Connected BackUp – 2-3x Amazon – plus the cost of initial setup and other server and client software charges.
The StorageMojo take
At those rates IM should have been profitable using anything. Therefore they were losing business to more cost-effective suppliers and earning anemic profits on the – heavily discounted? – business they did win.
It is no accident that Amazon and Google engineered their own storage. IM lacked the expertise to do it themselves and ended up in a cost bind.
It is a cautionary tale for would-be cloud storage providers: either get your costs competitive with AWS or get a clear differentiation. Most, like Nirvanix, Nexenta, Zetta and Atmos are going with the latter.
Courteous comments welcome, of course.