EMC has purchased Berkeley Data Systems, the creators of Mozy, for $76 million. Mozy was one of several companies focused on hosted backup that started over the past 18 months. It has proved itself to be a fast and reliable service; the entry-level MozyHome service is free for 2GB of storage.

With only $1.9 million in capital raised, and assuming an insignificant revenue stream (this is an educated guess, as we don’t know Mozy’s financials), this could represent as much as a 40x valuation. With Software as a Service (SaaS) gaining momentum gradually, expect to see more niche hosting markets such as hosted backup join the ranks of hosted email, hosted archiving, and hosted email filtering.

We are still near the beginning of what we expect to be a long wave of consolidation in the SaaS arena as large players jockey for a piece of the hosting business. Annuity revenue streams are extremely attractive. However, most customers will want to sole-source their hosting vendor, so the pressure is on interested parties to develop a broad offering.

Given the relative immaturity of this market and the security and technical challenges involved (especially in multitenant scenarios), expect many false starts and lots of noise. Vendors providing SaaS would be wise to closely guide early-adopter customers through the process. Handing over data — be it email, backups, CRM. or other data — is risky. Earning trust is paramount.

… David Sengupta, with Richi Jennings