Will Alcion Solve Veeam’s BaaS Problem?

Veeam Software has invested in the $21 million series A funding round of Alcion, a fledgling start-up aiming to address the growing need for data protection of SaaS platforms. Is the investment a precursor to a future acquisition by Veeam, where Alcion solves the BaaS gap in Veeam’s portfolio?

Background

Veeam Software is an undoubted leader in data protection for the enterprise. The company was founded in 2006 and took advantage of the rise in server virtualisation to develop a platform for virtual server backup and restore. The company was acquired by Insight Partners in March 2020 for $5 billion.

In October 2020, Veeam acquired Kasten, a start-up focusing on data protection for Kubernetes, running within a Kubernetes cluster. The founders of Kasten left Veeam and founded Alcion in March 2022, focusing on building a backup-as-a-service capability using an open-source platform called Corso. From the GitHub website, it looks like Alcion is the main if not sole, contributor to the development of the software.

SaaS

If we step back and look at the broader backup-as-a-service market, we see two critical threads. The first is to protect SaaS applications, of which there could be as many as 17,000, according to HYCU CEO Simon Taylor. The second is to offer backup-as-a-service that can protect both SaaS and non-SaaS applications.

It’s easy to assume that most SaaS application platforms are technology-related, but that’s not the case. Office 365 and Teams are used widely across all industries, as are Salesforce and Sage, for example. SaaS applications permeate all parts of the business, from sales to marketing and operations to fulfilment.

Issue: SaaS is becoming a critical component of all businesses, large and small.

Unfortunately, most (if not all) SaaS platforms offer no form of customer-facing data protection. The platform itself may take backups to ensure recovery from infrastructure issues, but the SaaS vendors won’t offer recovery of data that has become lost or corrupted due to (for example) a user error (although they may charge a lot for ad-hoc recovery).

Issue: SaaS platforms offer little or no data protection to fix operational data loss.

BaaS

So, data protection of SaaS platforms is an essential business function. However, many businesses started over the last decade could easily operate with no on-premises infrastructure. The public cloud and the expanse of SaaS tools mean it’s no longer necessary to build and operate infrastructure (and hasn’t been for some time).

With this in mind, backup-as-a-service or BaaS is the most logical way to protect SaaS applications. Businesses don’t need to deploy infrastructure or build backup systems themselves. In fact, we believe that BaaS will become the norm for the majority of data protection requirements, except for large enterprises where latency and speed of recovery become key metrics of success.

Across the industry, we can see BaaS in action already, with Druva, Metallic (Commvault), HYCU and other vendors offering data protection billed on a monthly basis. Most of these services charge by the seat or SaaS licence, making it easy to align backup costs to the TCO for using a SaaS platform. Data protection just becomes another component of the cost.

Build or Buy?

If we look across the data protection landscape, we see that HYCU developed from on-premises software that was adapted for the public cloud model. The company now protects on-premises, public cloud IaaS and SaaS applications either with on-premises software or using the SaaS option delivered in the public cloud.

Commvault chose to build a start-up within the company and established Metallic, effectively creating a brand that doesn’t depend on the Commvault name. Under the covers, much of the software used to deliver Metallic is derived from Commvault backup solutions, but that doesn’t matter when data protection is delivered as a service.

Taking a build route takes a lot of work to achieve. We’ve provided some links to content we’ve recorded with both Metallic and HYCU over recent years. One aspect that stands out is the requirement to provide country-specific operations, billing, and support. Enterprise customers expect local coverage, not a platform delivered solely from the United States.

Veeam Growth

Looking back at Veeam, in this blog post, we looked at ten years of Veeam growth. Although the company doesn’t publish official figures (it’s private), press releases do provide some insight. In the latest data, Veeam continues to talk about $1 billion in ARR and around 450,000 customers. This is not much higher than the numbers quoted in 2021 (there was no announcement in 2022).

However, when CEO Anand Eswaran took over in December 2021, he projected a future revenue target of 10x the current level. We posited that to achieve that growth, new markets would need to be tapped through acquisition and a wider portfolio of solutions. Alcion could be that future.

Acquisition

Let’s think about how an acquisition could play out. Firstly, Veeam funds the development of Alcion, initially starting with the low-hanging fruit of Office 365 and associated Microsoft products. Over time, the company develops capabilities for Salesforce and other Veeam-supported platforms (remember, Veeam already offers data protection for Office 365 and Salesforce, but the software runs on-premises).

Alcion develops the capability to multi-tenant the platform, offering MSPs a chance to provide their customers with data protection capabilities without the need to run any software. Veeam acquires Alcion and gains a ready-made SaaS platform that addresses the massive gap in Veeam’s portfolio. Veeam’s existing base of MSPs is still happy because they get a slice of the SaaS revenue.

The Architect’s View®

Veeam’s business has been driven by and paralleled the growth of server virtualisation. With the looming acquisition of VMware by Broadcom, that market is set to be fragmented and unlikely to see any significant growth over the next decade. Instead, we expect to see rival solutions being adopted and further migration of business applications towards IaaS and SaaS platforms.

As a result, Veeam needs new markets to grow the company. SaaS is the only one left that will grow significantly over the coming years. IaaS is starting to slow, while on-premises infrastructure is stagnant. With no presence in the BaaS market, Veeam needs an offering or is left to fight out taking revenue from competitors. The development of Alcion and future acquisition is, therefore, a slam-dunk that will help drive growth for Veeam.

We expect to see Alcion acquired by Veeam within three years. That is, of course, unless one of the incumbent data protection vendors doesn’t see the plan and makes a tactical acquisition first. Gaining Alcion could become a bidding war; however, with investment already in place, if Veeam lost out on acquisition, it would have the commiseration of getting a multi-fold return on that series A investment.