customer-service

September 13, 2007

Ultrasonic Wave Propagation Through Particulate Composites

That is a heck of a strange title for a hosting company blog post.

It was, however, a great title for a Master's thesis. Bear with me though and I'll put it together.

Once upon a time, I spent many a day (evening, night, whatever) in the basement of the Bright building at Texas A&M blasting ultrasonic waves at samples of composite materials and measuring the energy output on the other side. What we found was that if you hit the right frequency that made the little particles resonate, then a lot more energy was transmitted through the material1. But sending a lot of energy at the wrong frequency didn't do any good at all and most of the energy was absorbed. After a while, using the experimental data, we learned how to predict what frequencies transmitted the most energy.

Developing projects for a hosting company is pretty much the same. You can spend a lot of energy writing code and developing products, but if you don't produce something that resonates with the customer, no matter how much energy you put into it, you aren't going to get the results out of the other side. Having been in software development in the hosting industry for quite a while now, I have worked on projects that resonated with customers and a unfortunately on a few that didn't. The trick is to collect enough data before you start by using a mix of experience and customer interaction to predict what will resonate, and what won't.

See, I brought it all together and I get to tell myself that I still use my master's degree.

-@nday91

1I way oversimplfied this. My apologies to Dr. V. Kinra.

September 10, 2007

You Can’t Judge Health by Net Income Alone

In GAAP, net income is the bottom line. It's supposed to tell you if you're making money or losing money. But the amount on the bottom line is never equal to your bank balance and by itself, it's an inadequate measure of a hosting company's health.

For example, depreciation is subtracted before you arrive at net income. But depreciation is not cash going out the door. It represents the theoretical drop in book-value of something you own, such as servers. Ideally, the timing of depreciation should match the length of time you actually use something, so if you use a server for three years, its value would depreciate to zero over three years.

Problem is, from the years of hosting experience we have in this company, we know that servers bought in the early 2000's are still in use today. Many were depreciated over three years, but they're still generating sales revenue long after they've been depreciated to a value of $0. What this means is that net income from these servers was effectively UNDERSTATED during their first three years of use and that net income is currently OVERSTATED for the periods of use after their value has dropped to $0 on the books.

But since I have to judge a hosting company's health based on Net Income, here's how I do it. If net income is positive and it's greater than depreciation expense, one of two things is going on. Either they're knocking it out of the park in this asset-intensive business or they're not reinvesting enough to remain technologically relevant. If net income is positive but less than depreciation expense, they're likely healthy. If net income is negative and the absolute value of depreciation expense is greater than the absolute value of net income, the company could be fundamentally sound and worthy of receiving credit. Bankers will likely disagree with me, but my opinion here is hosting-business specific. Finally, if net income is negative and the absolute value of net income is greater than the absolute value of depreciation expense, then the company needs to adjust something to get healthy.

If you ask me, cash generation from operations is a much better indicator of the health of a hosting company. It ignores distortions like this mismatched depreciation. It will also tell you if the company generates enough cash to cover its debt service and/or to continue investing to stay technologically relevant.

Got that? If I haven't lost you already, I'll talk about how the normal Current Ratio calculation unfairly penalizes hosting companies next time.

-Gary

Categories: 
September 6, 2007

Hosting and GAAP Accounting: Like Toothpaste and Orange Juice

Hosting and GAAP accounting go together like toothpaste and orange juice.

If you're confused go brush your teeth and drink a big glass of orange juice. I've held out as long as I can, but I just cannot restrain myself from a post or two about the hosting business and accounting. So if this will make your eyes roll back in your head, please stop reading now and click here before you keel over.

In many ways, good ole GAAP just doesn't treat the hosting business fairly. Relative to accounting, hosting is a new phenomenon with roots dating back only into the 1990s. This is ancient in Internet time but double-entry accounting dates back to the 12th century, and the first accounting textbook describing the double-entry system was penned by Luca Pacioli in 1494. The double-entry system was used because mathematicians denied the reality of negative numbers until the 16th century and the double-entry system was used as a workaround for the lack of negative numbers.

So, why must we account for paradigm-changing Internet businesses with an archaic 800 year old math system? It's a classic example of the old "square peg – round hole" cliché. Toothpaste and orange juice.

Applying this 800 year old system to the hosting business often paints a flawed picture of the financial position of a hosting company. And there are a lot of folks in the financial world that either can't understand this or don't want to understand this by thinking outside the normal accounting paradigm.

I'll blog about two examples of this: 1) Net Income and 2) Current Ratio. My next post will cover Net Income and we'll discuss Current Ratio thereafter.

-Gary

Categories: 
September 4, 2007

The Customer is Always Right

Yes, even when they aren't. If you think about it, they ARE why companies are in business. Every business has customers no matter how large, small, or what type of business. Without them we could just drop out of college and sit on the couch and ponder the things we could be doing. Without them we would have "No phones, no lights, no motor cars, not a single luxury" and we might as well be stranded on a deserted island. Customers give us reason.

Traditionally large companies had all the money, power, and employees, and could service customers faster and more efficiently. In today's world the playing field has leveled thanks to technology as smaller companies can use services on demand and have the same footprint as the large companies. For instance, when I wanted cookies when I was younger I had to either drive to the store and buy them from the bakery or the shelf, or bake them. With the internet and the technology wrapped around it today you can order them online and then they deliver them right to your door. You can see this trend in many markets. Need a used car? No need to go get harassed by a used car salesperson anymore, just go to eBay Motors and if the car doesn't work out you can always sell it on Auto Trader. That is much better than a classified ad in a newspaper that fewer and fewer people read. Technology is a wonderful thing! It also makes it easier for the customer voice to be heard.

In the past if you didn't like the service you received at a restaurant you could complain to the manager and maybe get a free dessert or appetizer on your next visit. If a mechanic overcharged you for work on your car you really didn't have a leg to stand on you simply paid and grumbled. If someone broke their word and took money for a service, then didn't actually complete the service, you could sue them but in many cases the rule "you can't squeeze blood from a turnip" applied and you were still out of your hard earned money nonetheless. Sure, you could use the word of mouth rule, "they tell two people and so on and so on" but in most cases this was a futile attempt at restitution. Technology is changing that. Today it is corporate and personal blogs, wiki's, social networking sites, and forums that help keep individuals and companies in line with customer expectations. A derogatory blog about your company can really affect your business depending on its viral popularity. Forum posts can get out of hand and prompt unhappy customers from many years past to jump on the band wagon again and tell of your shortcomings. This makes reputation management something that all companies have to consider. Times have changed for the marketplace and the best reputation management is to simply make every customer a happy customer.

I think in reality all customers aren't always right (I will await the beating in the comments!) but as a Service Company it is our job to always say "yes" when asked for something by a customer as long as it is legal and Internet-friendly. The request is usually something we should be doing anyway. In the long run you have to try to create a long-term relationship with every customer and if you can then it becomes a "win-win" for everyone.

Now, go tell two friends!

I wonder if WiFi is available on my deserted island yet.

-Skinman

August 27, 2007

Ditch Klunky, Hot-Running Servers for iPhones

Yes, servers shrink with size over time, but after reading this post about iPhones being web servers, I'm thinking about sending the following to David Letterman:

And now, the Top Ten Reasons Hosting Companies Should Replace Their Servers with iPhones

#10: At $500 a pop, they’re cheaper than new servers
#9: They come with more standard RAM than most servers
#8: They use less power than servers (just think how many you could cram on a rack!)
#7: They’ve got a multi-hour battery backup soldered right inside – so dispo your UPS’s also
#6: There’s no spinning disk drive to wear out
#5: You can ditch your bandwidth providers and leverage AT&T’s blistering fast EDGE network
#4: The operating system (Mac OS X) is pre-loaded – just rack it up and go
#3: Since you can’t crack it open, the expense of delivering custom builds is gone
#2: There’s a YouTube shortcut icon standard on every one
#1: They just look cool!

</sarcasm>

-Gary

Categories: 
August 24, 2007

Globalization and the Internet

Globalization is now, and forever will be, an ubiquitous topic in most political, economic, and social forums. The term "globalization" is defined by Merriam-Webster as "the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets." The latter of the traits has emerged as the strongest point of contention due to outsourcing. Markedly, Fortune Magazine recently published a story on a new "insourcing" trend. It's a trend so new that my spellchecker doesn't even recognize the word.

Though "free trade" and "free flow of capital" are explicitly declared in the definition of globalization, free flow of information is somehow absent. The role that the Internet has played in globalization and the development of the global economy cannot be overstated. Continued advancements in the Internet and Telecommunications have literally connected suppliers, vendors, sellers, and buyers that historically had been segmented by barriers such as geography and time zones. What this phenomenon has come to shape is the global marketplace, where products from across the world compete for the preference of an endless consumer base. With an increase in competition comes an increase in the consumer expectations for quality and performance. As a growing company with a significant international client base, SoftLayer continues to strive towards providing quality solutions and support that exceeds our customers' expectations.

Though the Internet has helped to fuel the soaring growth of the global marketplace in the recent decade, there are still many obstacles that impede its progression. Most of the hazards have a legal connotation surrounding hot-button issues such as Intellectual Property, Copyright Infringement, and most notably in the hosting world, Abuse (bandwidth theft, computer viruses, fraud, etc.). It's certainly enough to keep our abuse department busy as international standards and governing policies are fortified to help combat these areas of concern.

This observation merely skims the surface of globalization and the development of the global economy as there are many arguments both for and against its advancement. At the forefront or behind the scenes (depending on your vantage), you will find the Internet. It has been stated that “the Internet is the backbone of the global economy" with evidence cited in the form of web transactions going from "virtually nothing in 1994 to nearly $657 billion in 2000."1 Care to guess what that number is now? As SoftLayer furthers its commitment to quality, our objective is to continue to strengthen the platform from which our domestic, international, and multinational customers launch into and compete in the global marketplace.

-DJ

1Charles W. L. Hill, International Business: Competing in the Global Marketplace (Irwin/McGraw-Hill; Fifth Edition, 2004), p.13.

Categories: 
August 22, 2007

SaaS Who?

I'm always on the lookout for drivers of the hosting industry. One of those drivers is "Software as a Service" (SaaS). After seeing this article where Gartner thinks that the SaaS market will basically triple over the next four years, I wondered if the SaaS movement was affecting me yet.

I then realized that the SaaS market had grabbed me in one very important area – personal finance software. I had become disenchanted with my common desktop personal finance package – it had a lot of features that I didn't use and it didn't do some things that I need. So I began searching for options and discovered Mvelopes.

Mvelopes is a SaaS solution. Rather than buy the software, you subscribe to it over the Web. Anywhere you have an Internet connection you can access it, even from a mobile phone. It logs into the web sites of your bank accounts, investment accounts, retirement accounts, credit card accounts, etc., and brings your account info together in a convenient one-screen view. It will download info from accounts that your old desktop software can’t touch. And because it’s a subscription, you never have to worry about keeping up with new versions, patches, etc. Every time you log on you have the latest production software updates at your disposal.

It doesn't do asset allocation, portfolio analysis, technical analysis, stock screens or other fancy things that desktop personal finance software attempts to do. But it does planning and budgeting VERY well. This is what I need my personal financial software to do most of all, and my old software didn’t do this very well.

Probably the biggest hurdle in latching on to a SaaS solution like this is getting comfortable with placing the data security outside of your control since it doesn't reside on your local machine. But when you realize that the vendor hosts the data at a secure data center and has far better data security, physical security, and network security than your spare upstairs bedroom office, it is possible to make the move.

According to Gartner, software consumers will quickly realize the simplicity of subscribing to secure hosted solutions that are accessible from anywhere. Naturally, these rapidly growing SaaS solutions need a home. Consequently, we at SoftLayer would like to ask these SaaS providers such as Mvelopes, "Who does your hosting?"

-Gary

Categories: 
August 8, 2007

From Packet Exchanges to Application Exchanges

I once ran across an article that said Equinix customers can access over 90% of the world’s internet networks and users due to the number of carriers, content providers and peering located in their IBX facilities. That is a very staggering thought if you really think about it. The Internet is an endless array of fiber spread across the globe and most of it touches an Equinix facility somewhere along the path. There is little doubt about the value in being located inside an Equinix facility. The world’s largest carriers have standardized on using their facilities as global POPs to reach anyone and everyone connected to the net

While reading Mark Cuban’s latest blog, he proposes using an IntraNet vs the InterNet for large scale application deployment. He basically outlines the inability to sustain high bandwidth quality of service across the public internet. He believes that if the hosted application were to reside on the same network as the end user, the probability of success would be greatly enhanced. Although not quite the traditional IntraNet as we know it today, I do agree that having the content and user on the same network will probably lead to a much higher quality of service.

Taking that thought process and merging it into the latest Web2.0 initiative creates interesting possibilities. Isabel Wang has very provoking thoughts on social networking, SaaS, grid technology, EC2, S3, web integration and an endless list of possibilities. SWSoft and VMWare are talking SaaS and virtualization integration. Vlad and his team at 3Tera are deploying grids like there’s no tomorrow and Facebook, Salesforce, and Amazon are now building apps on an open API system designed to cater to developers. The whole world is reaching out to interact, merge, integrate, build, piggyback, and coordinate technology to make the geek world user friendly.

So I come back to SoftLayer and think – where do we fit into this big picture. It seems our network-within-the-network approach appears to fulfill Mark Cuban’s desire for both Intranet and Internet. The ability to rapidly deploy dedicated, virtualized, and grid technologies at the click of button serves the fundamental need of the Web2.0 entries. The ability of these companies to interact/integrate publicly and privately among each other is well served through our customer exchange. It sounds like if we were to strategically drop SoftLayer PODs inside the Equinix’s of the world – we could bring the world a much needed service for the future. On network Application exchanges to your local IntraNet. Now, there’s an idea.

-@lavosby

August 6, 2007

HostingCon 2007 / More Green

The SoftLayer contingency recently returned from attending HostingCon 2007 in Chicago and I have to say, it was a great experience. We had a lot of opportunities to meet up with many of our customers, meet with a lot of vendors and potential vendors as well as visit with some of our competitors.

While there, I had the privilege of participating in a panel discussion on "Green Hosting: Hope or Hype". Isabel Wang did a great job of moderating the discussion with Doug Johnson, Dallas Kashuba, and myself. The overall premise of the panel discussion was to talk about green initiatives, how they affect the hosting industry, what steps can hosting companies take and is it something we should be pursuing.

It was interesting to hear the different approaches that companies take to be green. Should companies focus their efforts on becoming carbon neutral by purchasing carbon credits such as DreamHost, by promising to plant a tree for each server purchased such as Dell, by working on virtualization strategies such as SWSoft or by working to eliminate the initial impact on the environment such as we have done at SoftLayer. You can probably tell from one of my previous blog posts where SoftLayer is focusing our efforts to help make a difference.

Besides the efforts of the individual companies on the panel, there were some good questions from the audience that helped spur the conversation. Does the hosting industry need its own organization for self regulation or are entities such as The Green Grid sufficient? Do any of the hosting industry customers really care if a company is "green"? Should a hosting company care if it’s "green"? And, what exactly does "being green" mean?

While there are differing opinions to all of those questions, there really isn't a "wrong" answer. Ultimately all of the steps companies take - no matter how small - will help to some extent. And no matter what the motivation - whether a company is "being green" in an effort to gain publicity, to save money or to simply "make a difference" - it's all worth it in the end.

-SamF

August 3, 2007

Is Your Company Ethical?

Thanks to my financial brethren at Enron, Worldcom, Barings, BCCI and all the companies currently embroiled in the stock back-dating scandals, I have sit through an ethics seminar every other year to maintain my status as a certified public accountant.

In my position as Chief Financial Officer, ethics and integrity are of paramount importance and as a company, we work hard to hire staff with these characteristics. Keeping that in mind, a survey was taken in 2005 by Deloitte and Touche of American youth between the ages of 13 and 18 in which they were asked the question, “If your boss told you to do something you thought was unethical, would you do it anyway”? An astounding (at least to me) 53% of the kids said they would do what their boss asked them to do.

As a technology company with a work force that gets ever younger as kids become more and more technologically savvy, that is frightening statistic. However, what it points out is the need for us to set the behavioral standards and to train our staff in what those standards are.

What are those standards? For every company those will differ somewhat but a recent survey points out the types of unethical behavior every company faces on a daily basis. In 2005, the American Management Association’s Human Resources Institute asked companies why their employees behaved unethically. The top five reasons:

  1. Pressure to meet unrealistic business objectives
  2. Desire to further one’s career
  3. Desire to protect one’s livelihood
  4. Working with a cynical, demoralized environment
  5. Ignorance that the act was unethical

We have all faced having to make decisions in light of one or more of those five reasons at some point in our lives. How we have reacted to those situations has helped define each of us as we moved through our careers.

How will you know what the ethical choice is when you are trying to make a decision? Let me leave you with one final quote from Potter Stewart, former U.S. Supreme Court Justice on his definition of ethics:

Ethics is knowing the difference between what you have a right to do and what is the right thing to do.

Are you doing the right thing? And are you demonstrating that to your peers and those you lead? The world is watching.

-Mike

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