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Consolidation Reshapes Online Backup Market

The online backup market is evolving fast. The market is relatively small -- estimates are that it generates a couple of hundred million dollars in revenue in the U.S. annually. However small the numbers are now, the potential size of the market has attracted some very large players, such as EMC Corp. (NYSE: EMC), IBM Corp. (NYSE: IBM), Iron Mountain Inc. (NYSE: IRM), Seagate Technology Inc. (NYSE: STX), and others. Many have wedged their way into this sector via acquisitions. Consequently, there has been a lot of turbulence during the past few years, and more changes may loom on the horizon.

One reason for the small market penetration is that the first generation of online backup was not all that successful. These services first emerged during the dotcom boom at the turn of the millennium, but they weren't embraced by customers. "Several years ago, the market was stymied by a lack of broadband connections," says Dave Robinson, vice president of marketing at EMC's online backup service Mozy.

In addition, vendors did not have sound algorithms in place so the backups were inefficient. Those problems were solved, and gradually more suppliers began to offer these services.

Like most fledgling industries, the early entrants were venture-capital-funded startup enterprises, many of which have emerged as key players. In fact, some did so well that they have been swallowed up by larger enterprises.

Iron Mountain was the first major vendor to snap up a startup and took a "Try Before You Buy" approach to its online backup acquisitions. In October 2004, the company acquired Connected Corp., a provider of online backup and recovery for PC data, for $117 million. Iron Mountain had been reselling Connected's backup service since 2002.

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