Spanning goes private, what might happen next?

Long ago, Spanning Sync was the only viable way to synchronize your GMail calendar and contacts with the (then) OS X iCal and Address Book. It was great! I also know one of the original founders, Charlie Wood, and we’d talk from time to time about the growing company. At some point, it became a Google Apps (now “G Suit”) back-up service that had a clever value prop: cloud storage, sure, but it’s not redundant you know, you gotta do the basics.

Anyhow, I always kept a close eye on the company. It was a little odd to see EMC buy them back in 2014: as VMware demonstrated with their dropbox competition products years ago, Apple is pretty goofy here, and even Google has demonstrated over the year, large software companies are pretty and at long-term plays for individual software; Microsoft is of course an exception with Office and sort of proves the rule.

We’ll see what Insight Venture Partners does with them. I’m guessing if you just left Spanning alone, more or less, it’d turn into a cash machine at some point. That said, I don’t think Dropbox and Box are exactly profitable. Here’s Box’s last four financial years:

…but it seems like a back-up service could controls costs better and do a lot less marketing: Box and Dropbox have been acquiring companies and re-positioning themselves as they go from more than just to cloud storage to something like “sort of Office, but not really, but maybe – or like Trello… er… let’s acquire another company and go to a conference where we have wooden floors and free espresso in the booth and think about this at next year’s company retreat in Italy.” (I KID! I KID!)

Spanning Momentum

Here’s some Spanning momentum from one of the write-ups:

Spanning has seen 70 percent year-over-year revenue growth and more than 7,000 customers, according to a press release. It restored around 18 million items for customers in 2016, and expects to continue growth with its global data center expansion, and distribution agreements with major channel partners.

A wet-finger-in-the-wind business case

It’s hard to quickly find pricing for Spanning on their page (smells like enterprise software!), but a few searches, particularly from Spiceworks, says it’s like $35 a month.

There’s certainly discounts on some of those customers, but let’s say the revenue would be a max of $2,940,000 annual to something like $1.5m on the low-end if you do all sorts of discounting on clusters of users.

Now, 70% y/y growth is pretty impressive, but not too insane for a relativly new offering. Let’s say they do that two more years and then it goes down to like 30 or 40% for any length of out years we care about.

Then, let’s just take a swag at storage costs. Who knows if they use S3, but let’s assume they can get down to similar pricing, we’ll take S3’s mid-tier: $0.0125/GB/month. My work Google Drive says it’s 22 GB, but I save a lot more stuff than most people do. Let’s just go with 20GB as an average. Then let’s assume you at least duplicate it, so you’re paying for 40 GB a month (across two cloud zones), which is $6/year. (Let’s ignore networking transfer charges – adding that in is left as a exercise for the reader!)

Then you need all the meat-sacks. You could probably get by with 6 to 12 product staff (programmers, product manager – you probably outsource design at this point as needed).

You need the CEO, HR, CFO, and probably 1-2 people to work for them (6 people max); you could probably cut out HR depending on how Insight likes to run HR (outsourced or pooled across companies). Maybe the CFO, but probably not.

I’m no enterprise SaaS business expert, but I’m guessing it’s marketing and sales heavy, so:

Then you need probably 2-3 people in marketing (if you were slick, you could outsource a lot of this, esp. for something as easy to understand as “backup”): 5-10 face-to-face enterprise hustlers, and let’s say a team of 5 “inside/web” sales people who send all those annoying “Re: catching-up. I see you read out white paper on BACKUP. Would you like to talk more? Are you the right person at your organization?” emails. So, max 18.

That’s around 36 people, which seems really low to me. But, if you were, I don’t know, a private equity firm, you’d probably think that was OK, if not a little heavy for a company that basically just copies files from one place to the other (yes, I’m being MBA-fatuous).

Without getting a spreadsheet to do some clustering, doing salary cost across such a diverse set is hard. Many of them are in Austin (I assume, still), so let’s just of with $150,00 all-in per head (I’m sure the admin staff and your “strategic account” sales people get paid well plus extra comp, and the more senior tech staff get paid more). So, that’s something like $5,400,000 in people expenses. Then there’s going to conferences, probably a large ad budget, that nice office they have in downtown Austin (which I think is an EMC office, so they’ll get the boot?) which means buying a lot of organic beef-jerky and craft beer etc., then there’s flying those 5-10 enterprise hustlers around and their $70-100 a day per diems, plus wining and dining. Let’s just trow in another million and go to $6.5m.

So, with some mumbo jumbo business casing (I grow revenue by 70% for two years, then level it off to 30% for the last two years; I grow staff up to 60 people max), you have something like this:

Screenshot 2017-04-23 09.16.10

Those storage costs look insanely off. And from their press release, they claim to have actual data-centers (probably co-lo’d racks that are, at best, caged for compliance reasons, far from “having data centers”), which sounds like building your own, which might actually be as cheap, or slightly higher.

Who knows. Cloud storage is insanely cheap, so maybe that figure isn’t so bonkers. Of course, you need networking transfer chargers, etc. So, double, even quadruple the cost if you care too: still “nothing,” relative to the other numbers.

With this kind of Sunday morning, armchair analysis, there’s no end of flaws. Like I should have found the comparable costs, growth, the TAM, and staffing for Box, BackBlaze, etc., and even made sure I actually understand Spanning’s business model, but: ¯_(ツ)_/¯

Over years, that’s a pretty small gap to close to be profitably, and there’s a lot of things to play with in the spreadsheet (can we fire most all the sales and marketing people and go pure channel, hiring up a biz dev team of 2-3 people to get 5 or so key channel partners?).

It’s probably even easier to bundle up the company for sale to another large company after a few years. Someone like Microsoft or Salesforce might even want them to add that functionality to their own products, or any company that’s concerned about filling in it’s “enterprise SaaS” strategy gaps.

I’ve always like Spanning (RIP Sync). I hope it works out well!

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