Hard Drivers

Through resourcefulness, pluck, and constant improvisation, Backblaze has outlasted bigger, brawnier players with a cut-rate cloud storage service even technophobes can love. And it’s making a profit, too.

With unorthodox transparency, Backblaze built a super-cheap cloud-storage service that’s actually profitable.

To know a hard drive is to fear its death. For Brian Wilson, programmer, the affliction was a familiar one. Among friends and relatives, he was the go-to IT guy (the “family geek,” as he puts it), and he was used to getting calls about their tech problems—the big, the small, the stupid. Or, as on a morning in late 2006, when he heard from Lise, a childhood friend and skiing buddy, calls of total panic. “It’s all gone!” she said, barely pausing to say hello. “My computer crashed. I lost everything! Can you help me get my data back?”

“Do you have a backup?” he asked.

“Brian, I don’t need a lecture. I need my data!” Wilson always marvelled at his friends’ carelessness. He preserved three copies of his files at all times: on his PC’s hard drive, on Blu-ray discs in his closet, and on a second set of discs that he mailed to his brother’s house in case his own house caught fire. Doing otherwise was nuts.

After Wilson helped Lise as best he could (she’d synced her iTunes wrong and her music had vanished), he kept thinking how preventable such fiascoes ought to be. Why wasn’t there a simple way for regular folks to back up their data? It seemed like an easy business opportunity. Better yet, it might be just the thing that Wilson, a retiree at the age of 39, needed to fix his life.

The year before, Wilson’s first company, a venture-backed maker of spam-filtering software called MailFrontier, had been sold to a competitor, SonicWall, for $31 million. The deal, which netted him about $1 million, left him feeling wealthy but guilty. After guaranteed payments to the venture capitalists, not much was left for anyone but the founders; early employees got barely enough to pay for a mountain bike.

Wilson was feeling lonely, too. He’d used his payout to quit working and adopt a personal finance philosophy known as lean FIRE (that’s “financial independence retire early,” on a budget). Yet after seven months of motorcycle rides and ski trips, punctuated by interminable afternoons channel surfing and playing World of Warcraft in his Palo Alto, California, one-bedroom, he was desperate for something to do.

Lise’s call gave him a project. Wilson’s idea was to take advantage of two prevailing trends in tech. By 2007, almost half of the American population had broadband connections, and data storage was cheaper than ever. A year earlier, Amazon had introduced Amazon Web Services, which for a monthly fee handled all aspects of data storage from managing system traffic to maintaining the hardware. Wilson would piggyback on Amazon with an app that automatically uploaded users’ files to a secure AWS server over the internet. Back when he was a freelance software developer, he had named his one-man outfit Codeblaze; he’d call this one Backblaze—for backup.

Thirteen intense years later, his little company is humming along with a staff of 133, including more than a dozen with postgraduate degrees in computer science, math, and business. With Backblaze, Wilson and a crew of scrappy data ranchers have achieved something that’s rare not just in tech but in any industry: They’ve figured out how to charge less than practically every other competitor, including much bigger ones, and make a profit doing it. The price of their main service—now $6 a month for unlimited automatic data backup—nets out to less than the wholesale cost of leasing the storage space from AWS. The company’s revenue is modest: $40.6 million in 2019 (AWS generated over $25 billion). But sales are up 40 percent from the previous year, with 50 percent gross margins.

Also remarkably, Backblaze keeps no secrets about its success. In the foggy world of cloud storage, where giants like Amazon and Microsoft won’t even confirm the physical locations of their massive data centers, some of the best information about the inner workings of big data comes from this niche, online-backup company off the main drag in San Mateo, California. Backblaze has made the design of its low-cost DIY storage technology available online, for free, encouraging data hoarders everywhere from the Jet Propulsion Laboratory in

Pasadena, California, to the Alaska Climate Research Center in Fairbanks to build their own versions.

Backblaze didn’t share its business model and product specs out of altruism, though. It chose transparency because that was the only way the company could survive.

Unless you are a hardware-obsessed subspecies of IT nerd, you’ve probably never heard of Backblaze. But its following is passionate. Every time the company posts its quarterly report of hard-drive statistics, with data on the ages, number of reboots, average temperatures, and—most popular of all—failure rates of its 120,000 hard drives, it attracts hundreds of thousands of readers, dozens of whom inevitably end up furiously debating one another in the comments section. And the founders’ AMA (“ask me anything”) interactive interviews have twice made the front page of Reddit, the online discussion forum visited by 430 million users every month.

When Wilson started working on Backblaze, he assumed he wouldn’t need much help. But graphics and drawing had never been his forte (“I’m legendarily bad”), so he phoned Casey Jones, his longtime designer, to see if he might cook up a website and logo as a side project. Jones told Wilson that he should turn the idea into a real company. And if he did that, why not bring him on full time, along with some of the old gang who, like Jones, were still punching a clock at the outfit that bought MailFrontier?

Like the ringleader in a heist movie, Wilson assembled the rest of his co-founder crew, each with his own specialty. Billy Ng would write the back-end software. Ng was a plucky, unpedigreed engineer—Google would never hire him—but he was pragmatic and worked fast, and his unfussy code stayed written. Next, Wilson reached out to software engineer Chad West, who had the right kind of detailed, paranoid mind to develop the impeccable security and battle-ready infrastructure that a company handling lots of personal data would need. Finally, to run the business and be CEO, Wilson chose the only marketing guy he’d ever loved: Gleb Budman, a Berkeley MBA and the rare suit who cared as much about the guts of the product as the engineers did.

Wilson gave them his pitch: They’d build dead-simple backup software, rent the necessary storage space from Amazon, charge the users a flat subscription fee, and pocket the difference. He couldn’t afford to pay them, but in lieu of a salary they would split the shares in the company equally. Besides, he expected that in 12 months they’d be generating sales; they could flip the company or enjoy the easy revenue.

Wilson put up $50,000 of his own money to get the ball rolling and buy things like computers, a white board, and Ikea office furniture, which he and Jones assembled in his apartment’s living room. Those with property took out home equity loans in case they ever needed emergency cash. But they felt sure they wouldn’t. “I was like, we’re not going to work that hard. It’s going to be a bit of a hobby,” says Jones. “I even signed up for oil painting classes.”

The first bump in the road came sooner than expected. By late 2007, the founders had cooked up a catchy pitch: unlimited online backup for $5 a month. The problem was that it broke the business model. If they outsourced their data storage to Amazon as planned, and their average customer stored just 30 gigabytes, the associated AWS fees alone would eat up all their revenue. Other options, like buying or leasing server arrays from Dell or HP or EMC, were also far too expensive—which didn’t make any sense. The actual cost of data storage was cheap. But as soon as you tried to hire someone to help you store that data, you had to pay a premium several times the physical cost.

The founders evaluated their options. The classic Silicon Valley strategy was right there: They could raise a bunch of cash to cover all the costs as they figured out the product, the customers, and maybe, someday, the profits.

Wilson flatly refused. No venture capitalists. Ever. Again.

As anyone who’s ever nursed one could tell you, a good, hard grudge has a unique and personal tapestry, intricately wrought of had-to-be-there bad moments and can-you-believe-thisguy slights. But, long story short: Selling MailFrontier had not been Wilson’s idea. He claims that the two lead investors, Tim Draper of Draper Fisher Jurvetson and Stewart Alsop II of NEA (a one-time Inc. editor), bullied him and his co-founder into selling because, Wilson believes, they were getting ready to close their present funds and raise new ones, and wanted to notch another successful exit for their sales materials.

The last straw came weeks after the deal closed, in the form of an email sent on a Friday night in early April 2006. The message, written earlier that day by DFJ’s CFO, Mark Greenstein, to Draper and his two partners, summarized the bottom line after proceeds of the deal were distributed: “Net outcome to the fund ... is essentially ‘breakeven’ (it nets to a tiny loss of $116).”

That evening, Draper forwarded the email to the Backblaze board with a note at the top:

“Somebody owes my fund $117. I want it.”

Wilson was nonplussed. “I actually laughed out loud when I read the email,” he says. He couldn’t tell if Draper was joking—DFJ had received $8 million from the buyout. So Wilson

In 12 months, they could flip the company or enjoy the easy revenue. “I was like, we’re not going to work that hard. It’s going to be a bit of a hobby. I even signed up for oil painting classes.”

wrote a response that could work either way: “I’ll cover this. Just tell me who to write the check to and where to mail it (or I can drop it off in person on Monday morning).”

The next afternoon, Draper replied all: “Mark: Who does he make the check or checks out to?”

Which is how Wilson came to be at the Sand Hill Road offices of DFJ that Monday with a check for $117 (plus ones for $3.17 and $1.71 made out to a couple of other DFJ entities). Three days later, Wilson saw on his online banking portal that DFJ had deposited the checks.

Draper says he hadn’t wanted to sell MailFrontier, but acknowledges that once other investors convinced him it was the right move, he insisted that DFJ get its money back plus $1. “It is important to place your terms so people can simplify the rest of the negotiation,” Draper says. Wilson vowed it would be the last venture capital transaction he would make for a good long while.

With no desire for outside cash, the founders debated what to do next. West and Ng thought they should tie prices to the amount of data stored. Budman demurred, believing, based on his extensive research (“I pestered relatives, friends, other guests at weddings,” he says), that their market would evaporate if they abandoned the flat rate or charged more than $5. And their target customers probably had no clue how much they were storing in the first place; if they uploaded a bunch of family photos and their bill increased, they’d cancel. West, on the other hand, could only imagine impending disaster—data-hoarding customers would glut Backblaze’s servers, and costs would soar.

While the others debated—West soon quit over the issue— Wilson dwelled on the cost of the actual hardware. Their needs were so simple: They had to move chunks of data to their data center, mostly let it sit there, and just not lose it. Why should they pay Amazon or Dell for souped-up processing power and sophisticated load-management software they didn’t need and would never use?

Wilson got out his only credit card (the one his parents gave him for emergencies when he was 15) and started ordering parts online. They quickly replaced West with another MailFrontier veteran, Tim Nufire, who also had a brain for security (and just happened to have a house to borrow against). All were in agreement: They would build the server farm by themselves. How hard could it be?

Anybody, even experienced programmers like Wilson, can forget the physical reality of computing. The sleek touchscreens, peppy voice assistants, and streaming high-definition video are all enabled by software, yes, but that software instructs an operating system, which talks to firmware, which is translated into something called assembly code—literal strings of ones and zeros. To be useful, those ones and zeros can’t just be written on a screen; they must exist somewhere physically, as energy or matter, so they can be detected and measured and make a computer do something. Photon radiowave pulses in the case of Wi-Fi and charged silicon crystals in a floating gate transistor on your smartphone’s solid-state drive are examples of ways computerized information travels and is stored today. But the vast majority of the world’s data still exists as magnetized clusters of cobalt alloy grains coated on glass and aluminum platters—that is, on hard drives.

Perhaps it’s been a while since you’ve thought about the hard drives in your life, if you’ve acknowledged them at all. Some live close by, in your desktop PC or the USB-connected box on your desk. Most toil far away, dragooned into server-led regiments in windowless data centers. If one is near you as you read this, take a moment and put your hand on its vibrating case. Feel its warmth. Kind of like it’s purring, right? In fact, there’s a deranged, mind-boggling carnival game taking place inside each and every one of those things.

For a hard drive to work, the platters of magnetized cobalt alloy must spin, and spin fast (typically 120 rotations per second). To store data, an actuator arm fitted with a tiny electromagnet called a read-write head must flip the polarity of specific grain clusters on the platter—the bits—in precise sequences as they whirl by, turning ones to zeros and zeros to ones. These days, a decent read-write head can read or flip 3.8 million bits during a single go-round. But this densely packed little world is terrifically delicate. A speck of dust can cover up kilobytes, and the read-write head might have only three nanometers of clearance above the platter, less than the depth of a fingerprint. Now consider the scale of the game board: The heads on a one-terabyte hard drive must oversee more ones and zeros than there are stars in the Milky Way. Sure, the hard drive humming beneath your hand is built with quality

parts, but it’s probably not top talent—you bought the thing for $65 at Best Buy.

Which is all to say: That hard drive of yours is gonna die someday. IT specialists understand the hard drive’s fragile mortality; they take precautions. One of the standard ways is to group multiple drives into a cooperative platoon called a RAID (“redundant array of independent disks”), so that if one drive fails, the others can automatically recover its data.

RAID storage was how Backblaze planned to keep customer data safe on the cheap. The team purchased commodity drives and low-end servers, loaded them with open-source versions of RAID software, and then wired them all together on the dining table in Wilson’s little apartment. They called their invention the storage pod. The pod wasn’t fast or sophisticated; it didn’t have to be. By building a low-cost, no-frills array that was reliable but god-awful in nearly every other way, Backblaze could store its customers’ data and keep it safe for an upfront cost that worked out to 11.7¢ a gigabyte—precisely 14 percent of what it would cost to buy a similar all-in- one setup from Dell, and 4 percent of what AWS would have charged the company for the same amount of storage capacity for the next three years.

Having annihilated the cost structure, the founders assumed they were about to conquer the world of online data backup. They were wrong. With the official launch in September 2008, Backblaze got 200 signups—and then flatlined. The following spring and summer, the company collected less than $2,500 a month, and then revenue started going down. The release of a Mac version a few months later gave it a substantial bump— enough that the founders could persuade friends and family to chip in $370,000 to spare their having to cover the upfront hardware costs with their own money and also pay off the $69,677.22 in bills they’d racked up thus far. But the solicitation only increased the pressure Wilson felt. He’d never asked friends for money before, and success was far from certain.

By autumn, there were no signs of improvement. Sales puttered along at a monthly rate of under $50,000—better than before, but just enough to pay each of them a salary of $30,000 a year.

The problem? Almost nobody backs up their computer, first of all. And among those who do, nobody believed Backblaze’s prices could possibly be so low. As the founders remember it, the few online mentions of Backblaze were about how it was probably a scam. “There were several common theories,” says

Budman. “One, that these guys are just burning through VC cash they haven’t announced, or two, that these guys clearly are going to monetize your data in some way. Or my personal favorite: They’re not actually storing your data.”

Feeling frustrated and determined to prove themselves, the founders decided to take to the company blog and write a post to explain exactly what they’d done, listing every component they used to build the server racks along with how much they paid for them, and what software they’d installed—everything. That way, anyone could see how they managed to charge $5 a month. If you didn’t believe them, well, here was a materials list and the schematics. Go build one yourself.

Jones, the soft-spoken one in the group, worried that they were making a fatal mistake. A competitor might simply copy their design. Or worse, people would see how unprofessional-looking their bright red storage pods were and laugh them out of the business.

They proceeded anyway. When the blog post went live in September 2009, the response was immediate and seismic. TechCrunch, GigaOm, and The Guardian all wrote about it; within two days, their post had been viewed 256,000 times; subscription numbers bounced 50 percent, to nearly 20,000. The surge caught them by surprise. Their target customers were people who avoided thinking about computers— grandparents and poets. Why would a technophobe want to read about homemade storage pods? But Backblaze sales doubled, to nearly $100,000 a month.

They had unwittingly roused a subculture.

For the family geek, nothing wrenches the heart like a hard drive crash. Type terms like drive failure or data recovery into the search bar of forums like Reddit’s r/talesfromtechsupport, where IT professionals gather to vent and commiserate, and witness families in the digital crucible: tearful mothers clutching a defunct drive with 12 years’ worth of toddler photos and videos of kids playing fetch with dogs long passed; mom-and-pop store owners lugging in the PC with the lone copy of all their business records. In every story, fate depends on the tech expert, who must coax the precious memories from the struggling drives. “If you are in the IT space,” says Andy Klein, Backblaze’s director of compliance, “a hard drive has made your life miserable at some point during your career. Probably many.”

The intense emotions that hard drives provoke might surprise the unafflicted. It could be euphoria (“I FOUND FILES!” wrote one Reddit user). Or snarling anger: “If that drive is currently in the process of recovering important files then WHY THE HELL was it in any sort of position to fall on the floor?” wrote another. “It should be in the middle of a clean desk, whale music and other nature

Their needs were so simple—they had to move chunks of data to their data center, mostly let it sit there, and just not lose it. They would build the server farm by themselves. How hard could it be?

sounds playing in the background.”

Backblaze’s first storage pod post attracted the same kind of passion. Many commentators, in fact, were saying the design sucked (the pod had two power cords and would shut off if both weren’t plugged in). Yet the more the company posted about the details of caring for thousands of hard drives, the more subscriptions grew—surging to about 35,000 by February 2010.

The founders could arrive at only one conclusion: Their cantankerous readers were the family geeks, the go-to IT people for all their relatives and friends. And after Backblaze got these folks worked up about drive installations and failure rates, they either signed up themselves or remembered the name later as they nagged their tech-averse loved ones to back up their damn data already.

Backblaze made transparency its marketing strategy. The team chronicled the troubles and triumphs of the business, publishing details that were wonky, embarrassing, or both. They explained a trick they used to increase cash flow (switching the default setting on the sign-up page from a monthly to an annual fee). They dished about a massive data center outage after a hapless security guard triggered a kill switch housed under a plastic shield, titling the post “Don’t Push That Button.” They open-sourced the breakthrough software that let them go from six-drive arrays to 20-drive ones, dramatically bringing down costs.

The blog readers would eventually do more than evangelize for Backblaze’s services. In 2011—a year after the founders finally had enough cash to pay themselves minimum wage—a disastrous typhoon struck Thailand, the center of the global hard-drive industry. The flooding shut down many of the country’s drive makers, and hardware prices doubled and tripled. The price spike persisted for more than a year, upending the Backblaze business model, which relied on upfront annual subscription fees to cover the initial hardware costs. With drive prices so high, they’d lose money on every new customer. They considered their options. They could refuse to accept new customers until drives got cheaper. Or they could raise prices above $5 a month.

Instead, Wilson came up with a plan that turned the problem into a game. He noticed that while wholesale prices had spiked, consumer drives at Costco and Best Buy were still bargains; instead of a price hike, the big-box stores limited sales to two drives per customer in tech-heavy areas. So Backblaze decided to go drive farming. Employees stopped off at Costco on their morning and evening commutes to pick up a couple of drives. Staffers asked friends and family and then eventually readers of the blog—the company had about 100,000 customers by then—to go to their local stores, buy as many drives as they could, and ship them to Backblaze’s data center in return for a full reimbursement plus $5 per drive. When the drives arrived, staff pried them open— a process they called drive shucking—and put the guts of those hard drives into storage pods. The company calculated that the community harvested 1,838 drives, including 300 on Black Friday alone, and helped Backblaze save $1.1 million. And the cheaper consumer drives actually performed and survived as reliably as the ones aimed at pros. Both insights later became subjects of exhaustive, statistics-laden blog posts—which boosted subscriber numbers again when they went live.

The world of data storage has evolved dramatically since Backblaze hacked together its first pods. In 2019, the average person with internet access consumed and created 9.5 gigabytes per day, according to industry tracker IDC, almost triple the figure from 2014, and that number is expected to triple again in the next four years.

Backblaze’s business has evolved too. During that same five-year span, its total data stored grew sixfold. But its revenue remained well below that of better-financed competitors such as Carbonite, a cloud backup company founded in 2005, which spent hundreds of millions on sales and marketing. Though Backblaze did finally take some VC money—it sold a 10 percent stake in 2012 for $5 million, using half the proceeds for a fund that let investors and employees take some money out—for the most part the company had to rely

on existing subscription fees to pay for new hires and advertising. But its strong fundamentals helped: Ninety percent of subscribers renewed their subscriptions after a year. Word of mouth drove growth too—the company has never spent more than 1 percent of revenue on advertising—helping Backblaze hold its user acquisition costs to $50 a head as sales grew steadily, from $10.6 million in 2014 to $40.6 million last year.

The company headquarters remain decidedly non-VC. Since 2010, when Wilson finally got evicted from his apartment (the landlord discovered that the founders had crammed nine desks into Wilson’s living room and drilled holes in the wall for wiring), Backblaze has operated out of a space above a beauty salon, giving the operation a vibe that’s more Better Call Saul than Silicon Valley. As the business expanded, the office grew like kudzu, attaching itself to whatever adjacent lease it could find. Today, the company winds around the entire two-story building, occupying all of the top floor, the back half of a furniture store, a former dress shop, and an old yoga studio and a dry cleaner—both conference rooms today. The glass storefront window is still intact, allowing for plenty of natural light, and occasionally a peculiar view: a soaking wet Tim Draper. In 2012, Draper opened Draper University, a forprofit school whose mission is “igniting the entrepreneurial spirit,” directly next door. Now every spring, summer, and fall, Wilson and his colleagues can look upon a Draper tradition as he welcomes incoming classes by plunging into the school’s outdoor pool dressed in a suit and tie to teach “the value of jumping in.”

Inside Backblaze, Wilson and his colleagues press ahead with far less showy work. In 2015, when subscriber numbers topped 250,000, the company introduced a second service, B2, aimed at those with more data than could fit on a computer— like videographers, whose cameras capture multiple gigabytes a minute, and who tend to store their body of creative work in drives shoved into duffel bags in a closet.

So every Thursday morning, Backblaze’s 11 marketing people gather to pitch blog stories that will appeal to heavy users. At a recent meeting, staff proposed such in-the-weeds ideas as a guide to migrating large video projects to the cloud and an essay looking at the misconceptions about federal privacy guidelines governing the electronic transfer of medical records. The new initiatives have helped customer numbers grow even more, to one million in early 2020.

All customer data is safely tucked away in storage facilities in Sacramento, Phoenix, and Amsterdam. But the cloud, it turns out, is not a light and fluffy place. Visitors to the Sacramento data center must first walk through the facility’s kill box—an armored foyer with tinted windows, doors that lock from the outside, and a burly uniformed receptionist sitting behind bulletproof glass. Before venturing onto the main floor, they step on sticky paper to remove any dirt or dust from the soles of their shoes. The building’s mighty HVAC system, which is powerful enough to freeze more than a thousand tons of ice in less than a day, blows refrigerated air up from grates in rows where racks of drives and servers face one another (the “cold aisles”), while vents in the ceiling suck up the air blown by the fans at the back of the racks (the “hot aisles,” which feel like the inside of a dryer). In case something goes wrong, underfloor canisters of halon gas will extinguish fires without leaving a mess, and three 1,250-kilowatt generators and 3.4 megawatts of batteries will kick in with backup power. At the center of this fortress, happily whirring away in neat rows, are the bright red storage pods. There are more than 500 of them in here now (with another 1,500 in the other centers), the newest with greater capacity so that Backblaze can keep pace with its users.

Wilson admits that he sometimes wonders what would have happened if he’d taken large sums of capital early on and built the business as big and fast as possible, as VCs would have wanted. Carbonite followed that model; it had $500 million in revenue last year and was acquired in December for $1.45 billion (a multiple that would have valued Backblaze at $118 million). Dropbox, the cloud storage company, followed that model too. Today it has over $1 billion in revenue, and its founders are billionaires. Those two companies also have cumulative losses of $175 million and $1.7 billion, respectively, but no matter; Wilson knows that Silicon Valley often derides independent companies like Backblaze as “lifestyle businesses,” as if mere double-digit growth, two-comma revenue numbers, and profit margins were for dilettantes.

Though here’s the other thing Wilson knows: No one other than his longtime co-founders can ever push him out or force a sale. If and when the company sells out or goes public—Backblaze is in the process of getting its IPO ready, though no date has been set—it will be the founders, the employees, and the friends and family investors who reap the full rewards.

The Backblaze history has no dazzling holiday parties with ice sculptures and elves, no private jets, and no invitations to testify before Congress. The company photos that Wilson keeps on the Backblaze intranet are pretty darn average: Budman and Jones hunched over an Ikea table eating takeout in the old Palo Alto apartment; Ng puffing a stogie in a vinyl patio chair in his backyard; a beer-and-burgers cookout celebrating the original storage pod story; a mess of wires left behind on company moving day. Not exactly unicorn-level stuff, these photos.

But you’d better believe that Wilson has them backed up.

The founders could arrive at only one conclusion: Their cantankerous readers were the family geeks, the go-to IT people for all their relatives and friends.