In Depth

Data Breaches Spark Hard Drive Shredding Boom

This is a great time to be in the hard-drive shredding business, as companies scramble to destroy data before the bad guys have a chance to steal it. A look inside the belly of the beast (includes video).

By Bill Brenner, Senior Editor

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The small white truck has been all over New England and beyond, making as many as 10 stops a day. Some customers only need a handful of drives destroyed, others unload thousands of them. Given the demand, the brothers may buy more trucks to accommodate the locals.

The customer pays about $10 for each hard drive destroyed. The cost is worth it, James says, since the damage from a data breach can be $200 or so per compromised name [The Ponemon Institute most recently estimated the average cost at $197 per compromised record].

A shredding sensation, across the nation
But the customer base has spread across the nation, requiring the Saraiva brothers to partner up with other shredding companies.

"If you can't cover the whole area - we have customers in California now - you enter into a partnership with similar companies," James says. "When we steer a customer toward a partner in another part of the country, we earn a commission."

So far there are two partners, but negotiations for more partners are underway, James says. The business consists of James, Phil and a secretary and they can manage up to 50 customers locally. But the partnerships have allowed them to expand the customer base into the hundreds.

The data breach epidemic has also translated into big business for Westborough, Mass.-based Security Engineered Machinery (SEM), which for years has been destroying sensitive data for the federal government. The company is now shredding sensitive electronic records for organizations public and private throughout the United States.

"Our specialty has been selling the shredding equipment to federal agencies so they can dispose of confidential data," says SEM President Peter Dempsey. "In the private sector, they buy the equipment as a knee-jerk reaction when there's a breach. When a breach happens, a CEO will look at the situation and say, 'We need to go out and buy the equipment.'"

An older service, newly discovered
The U.S. Department of Defense had been buying SEM's equipment for nearly 30 years. About seven years ago, however, the company started to accommodate certain customers who were only looking to dispose of three or four hard drives at a time.

"In a case like that you don't want to buy the equipment, you want to come to our plant instead," Dempsey says. And so a section of the SEM warehouse was refitted to meet the need. Three years ago, SEM was making $13,000 a year just on the destruction of hard drives, DAT tapes and other magnetic media. This year the revenue projection is $750,000.