« The Combat Consultant’s Toolkit | Home | Cloud computing round-up »

Revamping the Hosting model

By shurford | March 1, 2008

As Internet Services consultants, one of the most challenging projects we have be tasked with is to take a previously successful Hosting business and “revamp the strategy” to regain a “greater market share” and “make more money”. This less than adequate brief is typical of many hosting service providers who have seen their grasp on the market decline with the reduction of barriers-to-entry for SOHO start-ups, consolidation of larger competitors and an out-dating of their core technologies due to high churn-rates of new market offerings.

For the last 5 years the market has been scraping for position using more or less the same tools to little effect. Some larger players like Rackspace.com have made waves with their “Fanatical Support” and others with (almost) unbelievably low pricing that ultimately fails to satisfy.

We believe that the market is now entering into significant change cycle, brought on basically by the rising cost of energy globally. Utility Computing, renting on-demand resources for virtualised applications came about through a need to rationalise data centre resources and maximise the affective use of every kWh of electricity consumed. Utility computing is nothing new, mainframe computing is where it all began, but now, today, the difference is that the technical challenges the industry must overcome can now be considered profitable due to the savings delivered by energy efficiency.

If you’re still skeptical of the urgent need to focus on energy efficiency in data centres, consider this: in 2007, over 1.5% of the USA’s entire energy consumption was attributable to data centres. Now try and imagine just how much money that represents….

So, utility computing will save a stagnant SP business? Not quite, at least not on its own.

Here is our 15-point guideline for next generation hosting business excellence:

Stop underestimating customer defection rates. It is getting easier and easier for your customers to migrate to a better, more innovative offer from competitors. Existing customers are your safest option for growth. Keep the good ones, ditch the bad ones.
Stop relying on your historical brand strength - it may be strong and deserving of attention, but it should be reduced in priority with a return to the days of innovation on which your brand was established.
Do you *really* have a worthwhile USP? If not, you’re dead. Start innovating, targeting niches and getting noticed. Utility computing, Virtualisation, ASP, Content, Community. Listen to your customers, they’ll guide you towards your real USPs. Animate the market and surge ahead of competition.
Your data centre facility requires urgent upgrading: Efficient cooling system redesign, 24×7 manned access control, visual face-lift, procedures, virtualisation. If you can’t offer resilience, shut down and migrate to a low-carbon-footprint independent tier III facility.
Boost your New Business Development department: bring on board experienced, technically knowledgeable sales staff to sell solutions, not simply services. Aim for high-equity customers with good prospects of future add-on sales.
Your Database and CRM tools are too disconnected, under-used and with insufficient procedures for their effective use. The knowledge required for effective marketing and CRM is distributed across systems and harder to act upon usefully. Fix it.
There are insufficient internal SLAs and documented procedures for provisioning and support. You cannot force unrealistic SLAs but you need to establish some starting point in agreement with NOC and support. Then push for continual, measurable improvements.
Measurement and reporting do not allow for true evaluation of efficiency so you cannot highlight areas for profitable improvements. Measurement is difficult and time-consuming to implement but some basic steps should be taken and gradually, continually, improved.
Training is underdeveloped and under-documented. A new program should be developed based on bringing on-board a new experienced sales agent and the process should be led from within Sales & Marketing and backed up by NOC/support.
You don’t have a clear understanding of exact costs per service type or per customer, therefore individual profitability is not well understood, therefore future strategy and investments cannot be efficiently applied where they will have the most commercial effect.
You are not effectively targeting and attracting high-equity (profitable) customers. These could be large network customers, they may be smaller customers who require very little of your resources and refer other customers, or they may be customers of future strategic value. Engage visitors to the website when they are visiting the website, don’t wait for their contact.
90% of your marketing resources are spent on acquisition and 10% on retention and defection strategies. Greater focus needs to be given to existing customers, reducing defection and maximising earnings per customer. Increase monitoring and presence on user forums. Listen to and learn from your customers.
High value customers/referrers want to manage themselves. Whether its domain management, development environments or other control panels, empower these customers with solid tools for managing themselves and back them up when they need help. Don’t try to develop everything yourself, that is a different business model, concentrate resources on integrating best-in-class applications. Monitor their habits and enhance your direct marketing capabilities.
Apply some effort to content provision platforms such as Streaming, Social Networking, Downloads & Application hosting. Strong support from development & NOC are required for implementation. Invest minimally, partner maximally. Develop advertising revenue channels.
Embrace targeted marketing. Greater targeted marketing is required, supported by detailed customer/prospect interaction database and external market research agency. Let our competitors waste money on mass-market advertising.