How to add 5.5 petabytes and get banned from Costco during a hard drive crisis

“We buy lots and lots of hard drives . . . . [They] are the single biggest cost in the entire company.”

Those are the words of Backblaze Founder and CEO Gleb Budman, whose company offers unlimited cloud backup for just $5 a month, and fills 50TB worth of new storage a day in its custom-built, open source pod architecture. So one might imagine the cloud storage startup was pretty upset when flooding in Thailand caused a global shortage on internal hard drives last year.

Gleb Budman

“Literally overnight,” Budman told me, “… all the places we would go to get drives said, ‘Sorry, we don’t have any drives.'”

People assumed it was just a blip, and while Backblaze watched cautiously in the beginning, it figured it had enough hard drives stockpiled to make it through. However, when months passed and the situation only got worse — some suppliers were offering 3TB drives that used to cost $129 for around $600 — Backblaze knew it had to act. If the company didn’t want to change its pricing model or throttle users’ capacity, something had to give.

“That’s an absolute, just last, last, last resort,” Budman said.

It’s good to be a startup

Sometimes, it’s nice to have the flexibility of a startup. Rather than jack up prices or lower its revenue guidance, Backblaze just kept going about its business. Well, publicly, at least — behind the scenes, the company was working like crazy farming hard drives from the only places it could still get them at a reasonable price.

Its solution was to eschew the internal hard drives generally put inside servers and buy up the external hard drives sold for consumer backup at stores such as Best Buy, Fry’s and Costco. They fit nicely into Backblaze’s storage pods once removed from their protective enclosures, and the best part was that the 3TB drives Backblaze requires only cost around $169 apiece even during the height of the shortage. The company that builds Backblaze’s pods was even willing to “shuck” the drives for a couple bucks apiece, saving Backblaze a lot of manual labor in order to make its newfound source of capacity production-ready.

And then it happened: The shopping carts Backblaze was initially filling up gave way to two-hard-drives-per-person limits, which meant the company had to scramble. Keep in mind, adding 50TB a day means getting your hands on at least 14 new drives per day.¬†In the end, Budman tells me, its ingenuity meant Backblaze was able to procure about 1,800 3TB hard drives — or about 5.5 petabytes worth of capacity — in the three months it was actively farming them.

Backblaze details much the process in a Tuesday-morning blog post, including the hijinks that followed as the company got creative trying to figure out ways around the new hard drive limits. Maps were drawn, employees were cut off from purchasing hard drives at Costco — both in-person throughout Silicon Valley and online (despite some great efforts to avoid detection, such as paying for hard drives online using gift cards) — and friends and family across the country were conscripted into a hard-drive-buying army.

A chart of local stores and employee purchases

What doesn’t kill you …

Budman said the shortage should have taught everyone a valuable lesson that hard drives aren’t commodities that will always be available at commodity prices, so you need to take advantage of low prices when you can. In fact, Budman said, one of the reasons he resisted venture capital initially was to help stave off the mindset that money from VCs is easy and companies don’t need to spend wisely.

It appears the strategy worked. Backblaze closed a $5 million funding round in July 2012, but it hasn’t abandoned its hard-drive-farming ways. Internal hard drive prices have stabilized, but even today if prices on external drives drop to less than those of internal drives (after factoring in the voided warranty and the cost to shuck them), Backblaze will snatch them up.

But it’s nothing like the glory days in late 2011 and early 2012. Here’s a video of Backblaze employee friend and NextPunch founder Vladik Rikhter telling his story of playing cat-and-mouse with Costco’s e-commerce system and ending up with “a Kia’s worth of drives” in his entryway.