Posts Tagged 'Cost'

April 23, 2012

Choosing a Cloud: Which Cloud Chooses You?

It's not easy to choose a cloud hosting provider.

In the first post of this series, we talked about the three key deciding factors every cloud customer has to consider, and we set up a Venn diagram to distinguish the surprisingly broad range of unique priorities customers can have:

Cloud Customer Zones

Because every customer will prioritize a cloud's cost, technology and hosting provider a little differently (for completely valid reasons), we mapped out seven distinct "zones" to differentiate some of the basic market segments, or "personas," of cloud hosting buyers. That post was intended to set the stage for a larger discussion on how customers choose their cloud providers and how cloud providers choose their customers, and we're just scratching the surface. We're tackling a pretty big topic here, so as Bill Cosby famously says, "I told you that story to tell you this one."

As a hosting provider, SoftLayer can't expect to be all things for all people. It's impossible to offer a quad-core hex-proc dedicated server for a price that will appeal to a customer in the market for a $49/mo dedicated server.

To better illustrate SoftLayer's vision in the cloud market, we need to take that generic cost v. technology v. hosting provider diagram and give it the "Three Bars" treatment:

SoftLayer Venn Diagram

We're much more interested in living and breathing the Zone 5 "Technology" space rather than the traditional Zone 2 "Hosting Provider" space. That's why in the past two months, you've seen announcements about our launch of the latest Intel Processors, HPC computing with NVidia GPUs, searchable OpenStack Object Storage, and an innovative "Flex Image" approach to bluring the lines between physical and virtual servers. We choose to pursue the cloud customers who make their buying decisions in Zone 3.

That's a challenging pursuit ... It's expensive to push the envelope in technology, customers primarily interested in technology/performance have demanding needs and expectations, and it's easier to make mistakes when you're breaking new ground. The majority of the hosting industry seems to have an eye on the buyer in Zone 1 because they believe the average hosting customer is only interested in the bottom line ... That hosting is more or less a commodity, so the focus should be on some unverifiable qualitative measure of support or the next big special that'll bring in new orders.

As you may have seen recently, GigaOm posted a lovely article that references several high-profile companies in our 25,000+ customer family. We like to say that SoftLayer builds the platform on which our customers build the future, and that short post speaks volumes about the validity of that statement. Our goal is to provide the most powerful, scalable and seamlessly integrated IT infrastructure for the most innovative companies in the world. Innovate or Die isn't just our company motto ... It's our hope for our customers, as well.

We might miss out on your business if you want a $49/mo dedicated server, but if you're looking to change the world, we've got you covered. :-)

-@khazard

April 20, 2012

Choosing a Cloud: Cost v. Technology v. Hosting Provider

If you had to order a new cloud server right now, how would choose it?

I've worked in the hosting industry for the better part of a decade, and I can safely say that I've either observed or been a part of the buying decision for a few thousand hosting customers — from small business owners getting a website online for the first time to established platforms that are now getting tens of millions of visits every day. While each of those purchasers had different requirements and priorities, I've noticed a few key deciding factors that are consistent in a all of those decisions:

The Hosting Decision

How much will the dedicated server or cloud computing instance cost? What configuration/technology do I need (or want)? Which hosting provider should I trust with my business?

Every website administrator of every site on the Internet has had to answer those three questions, and while they seem pretty straightforward, they end up overlapping, and the buying decision starts to get a little more complicated:

The Hosting Decision

The natural assumption is that everyone will choose a dedicated server or cloud computing instance that falls in the "sweet spot" where the three circles overlap, right? While that makes sense on paper, hosting decisions are not made in a vacuum, so you'll actually see completely valid hosting decisions targeting every spot on that graph.

Why would anyone choose an option that wouldn't fit in the sweet spot?

That's a great question, and it's a tough one to answer in broad strokes. Let's break the chart down into a few distinct zones to look at why a user would choose a server in each area:

The Hosting Decision

Zone 1

Buyers choosing a server in Zone 1 are easiest to understand: Their budget takes priority over everything else. They might want to host with a specific provider or have a certain kind of hardware, but their budget doesn't allow for either. Maybe they don't need their site to use the latest and greatest hardware or have it hosted anywhere in particular. Either way, they choose a cloud solely based on whether it fits their budget. After the initial buying decision, if another server needs to be ordered, they might become a Zone 4 buyer.

Zone 2

Just like Zone 1 buyers, Zone 2 buyers are a pretty simple bunch as well. If you're an IT administrator at a huge enterprise that does all of your hosting in-house, your buying decision is more or less made for you. It doesn't matter how much the solution costs, you have to choose an option in your data center, and while you might like a certain technology, you're going to get what's available. Enterprise users aren't the only people deciding to order a server in Zone 2, though ... It's where you see a lot of loyal customers who have the ability to move to another provider but prefer not to — whether it's because they want their next server to be in the same place as their current servers, they value the capabilities of a specific hosting provider (or they just like the witty, interesting blogs that hosting provider writes).

Zone 3

As with Zone 1 and Zone 2, when a zone doesn't have any overlapping areas, the explanation is pretty easy. In Zone 3, the buying decision is being made with a priority on technology. Buyers in this area don't care what it costs or where it's hosted ... They need the fastest, most powerful, most scalable infrastructure on the market. Similar to Zone 1 buyers, once Zone 3 buyers make their initial buying decision, they might shift to Zone 5 for their next server or cloud instance, but we'll get to that in a minute.

Zone 4

Now we're starting to overlap. In Zone 4, a customer will be loyal to a hosting provider as long as that loyalty doesn't take them out of their budget. This is a relatively common customer ... They'll try to compare options apples-to-apples, and they'll make their decision based on which hosting provider they like/trust most. As we mentioned above, if a Zone 1 buyer is adding another server to their initial server order, they'll likely look to add to their environment in one place to make it easier to manage and to get the best performance between the two servers.

Zone 5

Just like the transitional Zone 1 buyers, when Zone 3 buyers look to build on their environment, they'll probably become Zone 5 buyers. When your initial buying decision is based entirely on technology, it's unusual to reinvent the wheel when it comes to your next buying decision. While there are customers that will reevaluate their environment and choose a Zone 3 option irrespective of where their current infrastructure is hosted, it's less common. Zone 5 users love having he latest and greatest technology, and they value being able to manage it through one provider.

Zone 6

A Zone 6 buyer is usually a Zone 1 buyer that has specific technology needs. With all the options on the table, a Zone 6 buyer will choose the cloud environment that provides the latest technology or best performance for their budget, regardless of the hosting provider. As with Zone 1 and Zone 3 buyers, a Zone 6 buyer will probably become a Zone 7 buyer if they need to order another server.

Zone 7

Zone 7 buyers are in the sweet spot. They know the technology they want, they know the price they want to pay, and they know the host they want to use. They're able to value all three of their priorities equally, and they can choose an environment that meets all of their needs. After Zone 6 buyers order their first server(s), they're going to probably become Zone 7 buyers when it comes time for them to place their next order.

As you probably noticed, a lot of transitioning happens between an initial buying decision and a follow-up buying decision, so let's look at that quickly:

The Hosting Decision

Regardless of how you make your initial buying decision, when it's time for your next server or cloud computing instance, you have a new factor to take into account: You already have a cloud infrastructure at a hosting provider, so when it comes time to grow, you'll probably want to grow in the same place. Why? Moving between providers can be a pain, managing environments between several providers is more difficult, and if your servers have to work together, they're generally doing so across the public Internet, so you're not getting the best performance.

Where does SoftLayer fit in all of this? Well beyond being a hosting provider that buyers are choosing, we have to understand buyers are making their buying decisions, and we have to position our business to appeal to the right people with the right priorities. It's impossible to be all things for all people, so we have to choose where to invest our attention ... I'll leave that post for another day, though.

If you had to choose a zone that best describes how you made (or are currently making) your buying decision, which one would it be?

-@khazard

December 20, 2010

SoftLayer Market Positioning: Bang v. Buck

SoftLayer's goal is to compete on performance and control, not price. The hosting industry is crowded with competitors undercutting each other on prices, and we don't want run in the race to the bottom.

A few weeks ago, about 18,000 customers officially became SoftLayer customers. Over the past decade, they joined the fold under the banners of The Planet, EV1Servers, RackShack, ServerMatrix and maybe a half-dozen other brands. Each of those brands was positioned to appeal to specific market segments, but they shared the same pursuit of "value" to offer customers the biggest bang for their buck. There are two approaches to providing that kind of value:

  • More bang.
  • Less buck.

In many cases, the "less buck" strategy was adopted. SoftLayer takes the contrary approach by maximizing the "more bang."

If I were to put it more presidentially, I'd say, "The 'less buck' stops here."

I get to chat with customers on Twitter, Facebook, the blog and the forums, and a lot of my interactions have been about pricing: "I used to get X server for Y, but now it costs Z." The trouble is that it's tough to compare many of the offerings apples-to-apples.

If you were to create an apples-to-apples server comparison, you'd see that a SoftLayer server is the equivalent of a server from The Planet with a KVM, a private network, additional geographic network points of presence, increased network capacity, the ability to select where you want your server provisioned, faster provisioning, seamless integration with cloud solutions, and a lot more automation... And these are just the differences that came to me as I was writing.

As a customer of The Planet, you could choose to omit many of the features above. As a customer of SoftLayer, we want you to be able to take advantage of the platform that was designed holistically to making growing and maintaining your hosted environment easier. The platform's architecture was dreamt up in garages and living rooms by folks that live and breathe technology:

"It's not about pop culture, and it's not about fooling people, and it's not about convincing people that they want something they don't. We figure out what we want. And I think we're pretty good at having the right discipline to think through whether a lot of other people are going to want it, too. That's what we get paid to do." – Steve Jobs

The reactions I get when I talk about the features included in a SoftLayer server range from, ""Wow. I had no idea," to, "I don't care. I don't need any of that stuff," and as you're reading this post, you may have already decided your stance. If you don't see value in the SoftLayer platform, we might not get your next server-worth of business, but if you have just been looking at the dollars and cents, I'd encourage you to investigate some of the features of the platform and ask questions about how it might make your environment easier to manage.

Along the lines of the platform being built for the future, I have a question for you: What would you change about the SoftLayer platform? What is it missing? What do you want it to do that it doesn't do yet?

-@khazard

November 19, 2010

What Does it Cost (Part 2)

Your People and How They Relate to Your Infrastructure

If you read my previous blog, “What Does it Cost (Part 1) - The Overview,” you may be interested to delve deeper into the conversation and math behind how all of this adds up. Essentially asking yourself “is it better to build infrastructure yourself?” is a good thing and you will inevitably try to ask yourself what does it cost to do so versus looking into “what would it cost to have SoftLayer do this for me since this is what their core competencies reside in?”.

Remember that one of the big lessons we can learn and that I re-learned at the conferences I attended is that your people are your biggest assets. This lesson is showcased and repeated several times and for good purpose, since this seems to be a time tested rule. While your people are a biggest assets they can also easily be one of your biggest costs especially if they are not managed properly. Every business should have a growth model but one thing that can hold you back is the cost of growth (or your growing pains).

Think about the amount of people you need when you run everything inside and what that will wind up costing. If your business, network, and uptime are all mission critical you’ll also need to take into consideration the number of people needed to make sure a facility is 24*7. You will need someone to fix a drive that brakes and needs to be replaced at 3:42AM, won’t you? Take the number of people that you think you’ll need and now consider what would happen if you were to double in size in a single year (or you could use your own timeline in your head). Would you need double the people or possibly more when you consider the needs of managers to make sure everything was in line with your business strategy? What would the cost be that you would need to pay when considering more than just their salaries.

Think of the other things that do not jump out at you immediately like taxes, insurance, a 401K plan, office space, other liabilities, etc. Gary Kinman (VP of Accounting and Finance) estimates that the cost of each additional employee is about 15-20% more than just the cost of their salary without including things like office space. This is one of the biggest aspects often overlooked, because it not only takes new people you would need to hire, but how it can monopolize time and production you would get otherwise from people you already have on staff.

Now, if you remember from part one I mentioned how Opportunity Costs are some of the biggest costs in the differences between how SoftLayer can help you versus doing things yourself. If you reverse the previous scenario and say that after you’ve just doubled in size there is a bust in the economy which causes you to have to contract. For starters the easiest way to cut back on spending is in people, so you may have to lay people off and ultimately make you the bad guy. Now here is where ugly gets really gruesome.

If you talked yourself into how cheap it can be to buy and do everything yourself you are in a real tight spot because now you may not have the necessary people to run all of your infrastructure, or in an even worse case scenario you may not even need it. What this spells out is that you keep something that cannot be used even though you are paying for it, and you had to let people go just to keep the rest of the boat afloat. Didn’t we say that our people are our most important asset earlier? You can’t always know what kind of worker someone will be when you hire them or how things will work out, but you do want to put yourself in a position to keep the good ones that you trust to push your business forward around and happy.

All right, that is enough doom and gloom scenario. Let’s look at this subject from another angle. As you grow in size generally everything you have and everything you use will grow right along the company. We covered the fact that it will probably become more and more obvious that you’ll need more people to do the work for your business. Hiring systems administrators, DBAs, and development staff can all be good moves that would impact your business specifically; however, are you putting them in the best position for them to be successful? Have you ever seen that show “Undercover Boss”? It seems that in a lot of the episodes you would see that a CEO was not cut out for doing a lot of other jobs in the company and would have a much greater appreciation of everyone who did all of those jobs and how hard they work. Sometimes they would have comments about if they were really trying to get that job they wouldn’t last long. Keep that thought in mind when asking these same Sys-admins, DBAs, and development staff to do jobs that they do not specialize in.

Taking your people in positions where they may get a grade of an “A” or a “B+” and putting them into different positions where they may get a “C-“, “D”, or even an “F” will not likely be good for production levels, decrease levels of morale, and will also likely tank the investment value made in the employees themselves and/or the infrastructure you purchase.

Bottom line is that the way the world is evolving is to work smarter, lessen risk, and (in drawing back to part 1) get more out of having less. The best way to avoid unnecessary risk is to not overextend yourself in the first place, and to stay in a position of flexibility so that you can react and adapt to the market around you. This is what SoftLayer is built for; keeping you with the most options in order to increase your ability to innovate and execute without sacrificing any level of control and without costing large sums of upfront capitol.

I am guessing that about 9 times out of 10 if you take the time to sit down and do the math it all makes perfect sense.

-Doug

Categories: 
November 3, 2010

Our Competition

It doesn’t come as a big surprise to anyone when I say that I spend a lot of time thinking about the competition. I want to understand what motivates them. I need to understand how they see the marketplace evolving. What are they doing about the cloud? What about IPv6? What about the network? No surprises there.

What I do think would surprise people is that I do not think of Rackspace, Saavis or Amazon as the competition. I think that real competition is found within the small medium business or the enterprise. I don’t have any hard statistics on it, but a number of analysts seem to settle on a 25:75 split. That is, they believe that only 25% of businesses go outside the corporate walls for their hosting needs. The other 75% have their own data centers, or have servers in various closets around the organization (and I mean real closets in some cases). It is not that we don’t want to win the other 25% of the world (we obviously win our fair share of customers there), but the attraction of the rest of the marketplace for SoftLayer is apparent – the opportunity is 3x larger. And that is really exciting.

In 2004, Nicholas Carr authored a book called “Does IT Matter”. One of his central arguments was the notion that IT adoption no longer meant implicit competitive advantage, essentially because IT has become commonplace, standardized and cheaper. I agree with him to a degree, particularly when it comes to larger companies and certain types of IT deployments. For example, there is not much competitive advantage to ERP or HR systems anymore – there are very few larger organizations that don’t have something in place. The same can be said for the Internet or mobile computing – everybody has access, and everybody uses fixed and mobile email. That said, you are dead without either function in place – the lack of adoption is a definite disadvantage. I can only assume that he did not have infrastructure as a service (sounds like IT to me…) in mind when he wrote the book.

I think that there is significant advantage to a relationship with SoftLayer. The difference is that we are taking some IT burden away to give some competitive advantage, versus adding IT burden to deliver an advantage.

What competitive advantage does SoftLayer bestow that is lost when everything is kept within the walls?

  1. Cost. This one is easy. We can deliver at a price point much lower that what you can do internally. This means that resources are available for other things, perhaps product innovation or marketing innovation.
  2. Expertise. Infrastructure is our business. We are better at this than you are. We invest in systems, network and people to make sure this is always the case. Think of less downtime and better security.
  3. Technology. Our ongoing investment in technology and our commitment to innovation means that our customers have access to the cutting edge before most others do. For example, we are already native IPv6 in the network.
  4. Focus. What happens when some of that burden gets shifted externally? It means that the company can focus more of its resources on growing business, versus merely supporting the business.
  5. Automation. If something around here gets done more than twice manually, then it is time to automate. The end result is that we are efficient – no waiting for servers to be racked and stacked. Give us an order and you are up and running in less than four hours. Think of this in terms of speed to market, and speed to scale.

I think you get the point, and I think that the 75% is slowly getting the point too. We deliver a significant competitive advantage by helping to drive your business forward versus delivering as a ‘back office’ that serves to drive costs. We’re waiting for you….

-@lavosby

October 27, 2010

Oh No CoLo, Go Go Godzilla (Apologies to Blue Oyster Cult)

A traditional Co-location has certain advantages and for some customers it makes a great deal of sense. At least it does at first blush. Take a look:

  • Colo is cheaper than doing it yourself as physical infrastructure costs are shared across a number of customers.
  • The hardware is yours, not the co-location company’s. This means you can scale in the manner you please versus what suits the business model of the co-location company. The potential downside is that this assumes you were smart enough to pre-buy the space to grow into…
  • The software is yours, too. You are not limited to the management suite provided by the co-location company. Use what you wish.
  • Colo centers are usually more robust than a typical business environment. They deploy more physical security in an environment that is designed to properly manage power (multiple generators on-site for example) and the risks associated with fire and other natural disasters.
  • Upgrade paths are determined by you versus the hosting provider.

But what about the cost side of the equation? What does that look like? It goes without saying that it is (usually) cheaper to use a provider like SoftLayer to host your gear, but by how much? We have built a relatively simple model to get at some of these answers.

Assumptions:

  • A mix of 75 small servers (Xeon 5503, 2 GB RAM, 250 GB SATA) and 75 large servers (Xeon 5520, 3 GB RAM, 250 GB SATA)
  • Colo pricing was based on $100 per U per month, or $2,500 per 40U rack per month cost. Colo capex assumed the same base configuration but at current market prices.
  • We assumed a $199 price point for SoftLayer’s small servers and $359 for large servers
  • Bandwidth consumption of 2500 GB per server per month (this is about 50% of what we see in house). A price of $50 per Mbps was used.
  • A refresh schedule of 50% at 36 months, 25% at 48 months and 25% at 60 months

So what do the numbers tell us? Well, I think it paints a pretty compelling picture for SoftLayer. The 60 month Total Cash Outlay (TCO) for Colocation is 131% of the SoftLayer cost.

Total Cash Outlay

  Collocation Softlayer
Initial Capital Expenditure (Cash Outlay) $341,700 $0
Monthly Recurring Charges $64,778 $60,450
60 Month TCO $4,740,917 $3,627,000

In addition to the total cash outlay, we can add in a bunch of additional “hassle costs” – the hassle of driving to the DC in the middle of the night for an emergency, the hassle of doing your own software patching, setting up your own monitoring, waiting on hardware delivery (and you are not going to be first in line given your volumes are likely to be low compared to SoftLayer), the hassle of booking assets to the balance sheet, depreciation entries, salvage accounting entries, actual equipment disposal, downtime while you perform upgrades – ugh, the list is almost endless.

The argument for a SoftLayer solution is pretty strong based on the numbers alone. And I think that they ought to be persuasive enough for most to rethink a colocation decision. That said colocation decisions are not made from a cost perspective alone.

For example:

  • Issues around data integrity and security often drive companies to adopt a corporate philosophy that dictates co-location (or an on premise solution) over an outsourced solution. There is a deemed corporate need to have data / applications running over their own iron. Indeed, for many, colocation represents a significant and progressive decision.
  • Many companies have infrastructure in place and a decision will not be made to veer from the current solution until a technology refresh is in order. Never mind that fact that a transition to an outsourced solution (and this is the case when lots of things are outsourced, not just infrastructure) can generate significant internal anxiety.

Many outsourcing adoption models seem to show a similar trend. To a degree much of this becomes a market evolution consideration.

  1. Adoption is very slow to start. Companies do not understand the new model and as a result do not trust vendor promises of cost savings and service delivery. To be fair to customers, service delivery for many solutions is poor at the beginning and cost savings often disappear as a result.
  2. The vendor population responds to initial concerns regarding service delivery and perceptions around cost savings. Innovation drives significant improvements from a product and service delivery perspective. The solution now seems more viable and adoption picks up.
  3. For some services (payroll is a good example), the cost savings of outsourcing the solution are realized across the marketplace with excellent service delivery and support being commonplace. We are close to mass market adoption, but some companies will opt to keep things in house regardless.

So where are we on the evolutionary curve? That is a difficult question to answer as there are numerous things to consider dependent upon where you want to look.

For most SMBs, outsourcing functions like HR/Payroll or their IT infrastructure is a no brainer – capital is not as readily available and existing staff is likely overburdened making sure everything else works. At the end of the day, the desire is to focus on running their business, not the technology that enables it. The decision is relatively easy to make.

As we go further up the food chain, the decision matrix gets infinitely more complex driven by an increase in geographic reach (local – national – international), an increase in the complexity of requirements, an increase in the number (and complexity) of systems being used and typically large IT organization that can be a terrific driving (or drowning?) force in the organization. The end result is that decisions to outsource anything are not easy to reach. Outsourcing occurs in pockets and SoftLayer certainly sees some of this where enterprise customers use us for a few things versus everything.

At the end of the day, the hosting market will continue to be multifaceted. All businesses are not alike and different needs (real or otherwise) will drive different business decisions. While I believe colocation will remain a viable solution, I believe that it will be less important in the future. The advantages presented by companies like SoftLayer only get more powerful over time, and we are going to be ready.

-Mike

December 24, 2009

The Power of Christmas

The Power of Christmas

Putting up Christmas lights this year was a serious beating. I kept blowing breakers due to the amount of lights I put up in response to my wife’s request for ‘more lights!’ It seems like every year things get bigger and bigger (like most things in America – trucks, combo meals, taxes, and the deficit). The problem is there is only so much power in convenient areas of my house and those locations don’t have enough power to run my lights because they are shared with things inside the house. My front porch outlet ties in with my garage outlets so every time we open up the garage door, the breaker blows and the Christmas lights on the front of the house go out. I got tired of resetting breakers and I ended up running 2x 20amp 110v dedicated feeds to my roof and to the front yard.

As I was putting the lights up, I found myself doing power calculations in my head. I multiplied the amount of lights I put up by the watts each bulb consumes to get the total watts. Then I took the total watts and put it into this conversion tool (http://www.mhi-inc.com/Converter/watt_calculator.htm) to calculate what they use in a Kilowatt hour. I have timers setup to turn on the lights from 6pm to 11pm (CST) so that is 5 hours a day. I plan to run them from December 8th through January 3rd which is 27 days totaling 135 hours of run time. Take the Kilowatt hour the lights generate times the hours of operation and you get the total Kilowatt hours used for the holiday season. I was then curious how much this was going to cost me (I am a cheap bastard) so I took out my electric bill (TXU, yes I am paying too much) and took what they charge me for a Kilowatt hour and got the dollar figure it costs to run the lights. I was surprised it is not as much as I thought considering how much light my house now generates. It lights up the neighborhood like the Griswold’s house in Christmas Vacation <http://www.imdb.com/title/tt0097958/> . I would not be surprised if you can now see my house from the space shuttle.

I don’t envy Softlayer’s operation guys because they do these types of power calculations (albeit on a much grander scale) on a daily basis. They have to figure out what types of servers with different components (CPU, drives, memory, raid cards) can go into a single rack to insure that power strips are not blown. Some people don’t understand that you can’t just fill a rack up with 44 1U (or 22 2U) servers and turn them on. You have to carefully plan down to the watt how many of each type of server can go into a rack without overloading circuits. You also have to take into account customer upgrades and make sure there is enough headroom for power spikes upon booting. The math involved in my yearly Christmas light escapade made my head hurt; I can’t imagine what Robert and Brad go though. Hats go off to them. My head would have exploded by now….

Here is the math (rounded):

15 ½ stands of C9 Christmas lights each with 25 bulbs = 385 bulbs
385 7 watt bulbs = 2695 watts
2695 watts = 2.695 Kilowatt hours (from http://www.mhi-inc.com/Converter/watt_calculator.htm)
2.695 Kilowatt hours multiplied by (5 hours a day for 27 days = 135) = 364 total Kilowatt hours
364 total Kilowatt hours times $0.12 = $44

So lighting my house for one month actually uses significantly more electricity than running a server in a SoftLayer data center for the same period of time.

September 27, 2007

Who Counts Your Beans?

Just like any company, the search for ways to increase revenues and lower costs to make more money never ends. In the increasingly competitive hosting environment, raising prices is rarely an option but finding ways to cut costs while making the experience better for the customer can and must be done on an ongoing basis.

We have achieved some success to date with the provisioning of nearly 10,000 servers; however, the end game is far greater as the ultimate goal is to become a multi-national corporation serving markets all around the world. In the hosting space, you don't really have a choice, you either innovate and get bigger or you get out. The complexities are just too great to have the luxury of maintaining the status quo. The technology landscape is littered with companies that started reading their own press clippings and got fat, dumb and lazy. And keep in mind that copying your competitors only delays the inevitable; the "me-too" companies eventually go away. In the technology world, you must innovate and push the envelope to survive.

While we are constantly looking for new and better ways to serve the customer, a great deal of time is spent improving internal reporting systems. I work with a management team that understands the importance of budgeting and tracking various financial and operational metrics. To that end, we have made a substantial commitment in systems and people to gather data to help make the best decisions for us and most importantly, for our customers.

I would love to reveal all the data we have at our fingertips but for competitive reasons, I don't want to give away too much but let me leave you with this tidbit: I wonder how many of our competitors' CEOs can, from his/her desktop, drill down to any one of 10,000 servers in multiple data centers and know exactly how profitable each individual server is with the click of a mouse.

The best companies in the world are all supported by world-class accounting and finance departments providing pertinent financial and operational data to all its stakeholders. The right information gives you a tremendous advantage over your competition.

Find someone good to count and analyze your beans. Wal-Mart did and turned the world of retail on its head. With a little luck, we might be able to do the same to hosting.

-Mike

July 20, 2007

Your Hosting Dollar

During some recent weekend R&R, my family and I saw a "human statue" street performer. He looked as if he'd been spray-painted gold – clothes, skin and all. He had a bucket out for "donations" and there was a healthy crowd watching. Parents would give dollar bills for their kids to put in the bucket. For each dollar, he'd do robotic movements and noise for 5 to 10 seconds and then return to statue status. After a few seconds, another dollar would go in the bucket and the cycle would repeat.

My son, a budding numbers-geek, said "Wow Dad, he makes pretty good money. I'll bet it’s $50 an hour." Being a full-fledged numbers geek, I said "By my calculations, it's more like $70 per hour".

This got me to thinking. What do we provide our customers for $1 of hosting fees? So I figured it out for our most popularly sold hosting offering. This is not $1 per line item below; it’s $1 for the whole package below.

  • 272,232,402,234,637 operations performed by the CPU at 50% utilization
  • 12 megabytes of RAM
  • 1.4 gigabytes of hard drive space
  • An Operating System to make it all happen
  • 45 seconds of technical support
  • 5,538,770,949,720,670,000,000,000 electrons (in the form of electricity)
  • 10,909 average sized packets of public transfer
  • Up to 37,973,200 average sized packets of private network transfer
  • All numbers are approximate. Nonetheless, be sure to make use of your hosting dollars here at SoftLayer!

    -Gary

Categories: 
July 9, 2007

Profit: A "Win-Win" Arrangement

Remember the "low-carb" diet craze a few years back? Some members of my family jumped on the bandwagon and I can remember seeing a lot of low-carb items in stores; low-carb milk, pasta, bread, chocolate, etc. Today you just don’t see as many of these products anymore. Look at the dates of the articles above and try finding some of the products in the links above – they’re long gone.

Why? Assuming these products really worked as advertised, when the low-carb craze was over, the cost of producing these products became higher than the revenue that the market was willing to pay for them. Maybe the market rejected them because they didn’t work. Whatever the case, mathematically, when costs are higher than revenue, there is no profit. Consequently, companies stopped offering these money-losing products. No profit is a "lose-lose" situation. Neither the companies nor the consumers who want the discontinued products benefit when there’s no profit.

The same goes for the hosting industry. If the cost of providing hardware, software, power, cooling, and bandwidth ever rises higher than what the market demand will pay, this offering will exit the marketplace. Personally I don’t think that will ever happen. Because there is an opportunity for profit in the hosting business, we and other providers will continue to inject our offerings into the marketplace. And due to the cost of these offerings, we won’t be offering dozens of processing cores, unlimited RAM, unlimited bandwidth and multiple terabytes of storage capacity for ten bucks a month.

Thankfully, SoftLayer doesn’t have to deliver all of that to achieve a top notch customer experience (as of yet anyway). But simply providing the list above is only part of the equation. As I mentioned in my last post, treating your customers "right" and building long-term relationships is critical to maximizing profit. Therefore, we do our best to price our offerings at value points that make both our customers and our investors happy. The resulting profit ensures that we continue in business and that we keep our server fleet refreshed. Profit keeps us around and motivates us to provide our customers with an excellent customer experience.

Thus, for SoftLayer and our customers, profit is a "win-win" situation.

-Gary

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