Iron Mountain Sets Its Sights High

When we hear the term "information technology" (IT), most of us think of digitally generated information, yet physical information, such as paper documents and printed photographs, still play a large role in our lives. Iron Mountain is a unique IT vendor in that its spans both the physical and digital information worlds, as well as the hybrid territory that links the two. That is significantly different from traditional hardware, software, and services vendors, so it should come as no surprise that Iron Mountain has an interesting business model story to tell.

Iron Mountain will celebrate its 60th anniversary next year but has experienced a 6X growth spurt in the last 10 years, which also saw the company make a number of key acquisitions. As a result, Iron Mountain is the unquestioned leader in the physical information management services business, including the well-known storage of paper documents, as well as magnetic tape storage media for backup and deep archiving purposes. Iron Mountain thoroughly understands the major opportunity the digital world represents and has augmented earlier acquisitions of such companies as Connected and LiveVault with the more recent purchases of Stratify and Mimosa Systems.

Still the vast majority of Iron Mountain's revenues come from physical information. That is good for the company's digital information efforts in that the physical side of the business generates cash which can be used for digital solution development and acquisitions. That is critical as with its smaller scale (relative to other IT vendors). Iron Mountain Digital has growth potential, but its current size, coupled with its ambitious growth goals, implies the need for selected additional acquisitions.

Iron Mountain held its industry analyst day in Boston on March 25. Analyst meetings tend to follow a similar theme. They start off with high-level presentations on vendor strategy and vision, then move on to more detailed discussions in one-on-one meetings and breakout sessions that delve into particular products or services and testimonials by clients and partners. Bob Brennan, president and CEO, started off the analyst event by discussing the strategy and vision of Iron Mountain's global leadership in information management services.

In 2009, the company reported total revenues of $3.01 billion, representing 3 percent internal revenue growth over 2008, a strong showing given the current economic conditions. It has shown growth for each of the last 20 years. The really important thing is that with its strong cash-generating position, Iron Mountain is in the enviable and relatively rare position of being able to create value (including its first shareholder payout program), as well as to continue investing in future growth, such as its recent $112 million acquisition of Mimosa Systems. By focusing on services that have recurring revenues and inherent growth Iron Mountain is blessed with bedrock financials but faces an ongoing challenge in continuing its green-thumb investing decisions.Brennan focused on the theme that there is one Iron Mountain that spans the information management continuum from physical to hybrid (mixed physical and digital) to digital. That can be services for storage (box, tape, email, SharePoint, file, and images) or services that perform some action on information (document conversion, tape restoration, indexing, classification, discovery, retention, destruction, and more). This does not mean that the company's different business units each have the same messaging and sales forces, but it does create a conceptual context in which everything fits and that the essential cultural aspects, uch as a focus on customer relationships, are shared across the company. Iron Mountain is continuing to build on its expertise as custodians of physical records and extending that expertise to how information is managed in the digital world.

Any services company depends upon having trusted relationships with its customers. Mr. Brennan discussed Iron Mountain's "trust equation" in which trust equals credibility plus reliability plus integrity divided by self-interest. To some, that may seem a little contrived, but the "equation" serves two real purposes. First, it provides employees concrete examples of what they need to be, not just appear to be, to earn the trust of their customers. Second, it can be used to understand competitive advantages and opportunities. For example, if a customer is putting together a data retention policy that might lead to the permanent destruction of no longer needed data, and that can be a significant portion of its overall data, an Iron Mountain data retention consultant does not have any self-interest in how much data is actually destroyed, but a storage vendor who lives by storage sales is not likely to be similarly motivated.

Iron Mountain's Digital 2.0 Information Management Vision
Ramana Venkata, president of Iron Mountain Digital, talked about the company's Digital 2.0 Information Management Vision, which deliberately contrasted with the past Digital 1.0 strategy. Digital 1.0 was about Storage-as-a-Service, where Digital 2.0 is about information management services. Digital 1.0 talked about services from the cloud; Digital 2.0 talks about location agnostic solutions (on-premises, managed and/or cloud services). Digital 1.0 pushed point products; Digital 2.0 describes a platform with intelligence-driven and policy-enabled applications. With Digital 1.0, Iron Mountain was locked into organizational silos; Digital 2.0 focuses on tying everything together. Iron Mountain has always been a conservative company, so describing Digital 1.0 as guarded, deliberate and safe made sense technologically and culturally. But the digital world is fast moving to new information strategies and needs, so offering Digital 2.0, where actions can be described as bold, agile, and aggressive, is a necessity.

Now, presentation slides are one thing; actions are another. What is really the importance of Iron Mountain's Digital 2.0? Although the company had a good strategy before, this new vision is much more in-depth, integrated, and with no disrespect to the previous vision, sophisticated. But so what? The answer is that it focuses Iron Mountain's management and employees more clearly, alignment being a key factor of success in any organization, and it really targets what is necessary to achieve rapid growth. Previously, the company's collection of digital business units each seemed to act independently. Although each will continue to sell its own products, there is now an all-encompassing strategy in place that broadens the ability to sell across-product lines. Iron Mountain now seems poised to grow its digital business rapidly, a critical point if that part of the company hopes to avoid being marginalized over the long term.

As part of the Digital 2.0 process, Iron Mountain believes that it has a number of sources of differentiation, including:

Iron Mountain conveyed two value propositions as integral to Digital 2.0. First, that the total cost of ownership of information, which is the traditional value proposition about helping its customers reduce their spending in owning and storing their rapidly growing information. Second, the total cost of information management. That sounds a lot like the first proposition but is subtly and importantly different in that it helps customers improve efficiencies and reduce spending specifically in managing information for use. Storage organized with intelligence (such as categorization, indexing, and clustering) leads to the intelligent selection of information, which is necessary when you have to scale to handle bulk data. That it important because Iron Mountain has evidence that manually transacting a document once costs 20 to 500 times more than leaving it untouched in storage for 20 years. And, of course, Iron Mountain's portfolio of products, including Mimosa Systems and Stratify, aid in areas like archiving and eDiscovery.The Underground
Yes, Virginia, Iron Mountain really does store information underground (and it is fun to talk about as it is different). The Underground is a huge abandoned limestone mine in western Pennsylvania. In addition to the storage of paper documents and tapes, The Underground is home to six data centers, including a subterranean cloud (hey, the cloud is location agnostic). Unlike most limestone mines, The Underground has a layer of shale that prevents the moisture that plagues most limestone mines. The Underground has very sophisticated climate controls, as well as very sophisticated management, including its own fire department (which must feel like the proverbial Maytag repairman as it has never had to be called upon).

The original Bettmann Archive, a philanthropic effort of Bill Gates that contains millions of historical photographs, is stored in The Underground. With a lot of planning and work to get exactly the right physical environment, the estimated life of the artifacts in the Bettmann Archive has been extended to 2000 years instead of mere decades. Nothing is certain, but, if you positively had to store some information safely, The Underground would seem to be the safest place and that is one area where Iron Mountain can claim uniqueness in terms of size and scope.

My Take
Skepticism is either in the DNA of analysts or a requirement for membership in a hypothetical analyst social club. We listen to what companies have to say and then weigh that with other things that we know from other sources. Finally, we season the analysis with our own experiences before we make final judgments. In listening to representatives from companies, analysts act almost like a jury deciding guilt or innocence. So what is the judgment on Iron Mountain?

It passes with flying colors. Bob Brennan wants Iron Mountain to be a "great company." That is a laudable goal but requires a good deal of work to achieve. Iron Mountain has done well. Its continuing financial success gives it the investment strength to continue to fund growth activities, an advantage that most other companies surely envy. Its focus on trust, which was substantiated by individual customers, leads to ongoing customer relationships and the revenues that they bring, but it has another important aspect. Trust is also vital to employee relationships.

That is particularly true than when assimilating acquisitions  The employee retention rate, such as that exemplified after Stratify was acquired, attest to employee trust. Low turnover of talented people means that Iron Mountain can get the most out of its investment as those people are aligned with and excited about the vision and that leads to high productivity. Although it is too early to tell, as someone who has been familiar with Mimosa Systems for years, that acquisition appears to be going well as the interests of both Mimosa Systems and Iron Mountain are aligned.Iron Mountain's Digital 2.0 vision reveals a clear understanding of the company's strengths and focuses on where Iron Mountain has a competitive advantage upon which it can build, such as with its media agnosticism and its "look into" and "look across" capabilities. That does not mean that Iron Mountain does not face a number of challenges, the main one is how to grow the digital business very rapidly without losing focus. But so far, so good.

Disclaimer: Iron Mountain is not a current client but we have engaged in business in the past.