ISPCON Keynote:
State of the Webhosting Industry

This was the business-focused keynote at ISPCON, filled with ideas to help you increase webhosting revenue and reduce waste.

by Alex Goldman ISP-Planet Managing Editor [November 8, 2007]

"This is a young person's business, a hot business," said Douglas J. Erwin, chairman and CEO of Houston, Tex.-based webhost The Planet. Erwin is not young, and this was a joke. The day of hotshot webhosts is over and webhosting requires a hard look at the numbers, a relentless focus on the dollars and cents.

He said that the average webhosting business is growing at 12 to 14 percent per year, and The Planet is growing at four times that rate.

Because business is good, businesses are for sale, and there are buyers, but valuations are high. "Companies are buying to obtain economies of scale," he said.

Maturity
The business has matured, and customers have matured too. They no longer fear the internet, to the extent that they are now comfortable with having a geographically dispersed workforce.

Challenges include churn, the capital intensive nature of the business, and retaining talent in a mini-boom market.

Then there's deflating prices for services offered. "Customers expect more for their buck and almost one-on-one support instead of the electronic curtain," said Erwin.

The Planet's response has been to improve consistently, but to adopt only proven technology. "We're leading edge, but not bleeding edge," Erwin said.

You need to be able to deliver and support any service you introduce, which is why you must use proven technology.

Metrics
"You can be the most successful bankrupt company in the business," said Erwin, drawing laughter. "We had success but no capital. We learned that our product strategy needed to yield cash for growth.

So he started focusing on metrics that were easy to measure and to communicate to all employees at The Planet. Metrics included churn and data center profit per square foot.

2.5 percent churn per month may be normal, but that translates to 30 percent churn per year, which is unacceptable. With over 40,000 servers under management, that's 12,000 servers each year. It's too much work. Reducing churn has to be a priority.

Evolution
As webhosting offerings become commoditized, profit margins can be found at the premium level of services, but the definition of premium is constantly changing. Erwin said he had an epiphany while listening to a Microsoft executive talk about a larger market than he'd ever considered. "He was talking about an IT Services Market worth $1.5 trillion dollars [per year]."

In order to crack this market, you have to be able to prove you're reliable. If a customer has questions about the data center, they can view the demo on The Planet's website. "Skip the introduction by the old man," Erwin said, "and you can view it in about five minutes."

It's worth watching (but watch out—it can loop on you).

The demo shows the data center facilities and describes how the company can fulfill the compliance needs of the most demanding businesses. It's something you should consider doing for your own data center.

"Customers now demand SLAs, bandwidth from multiple providers, advanced services, and personal (not electronic) support," concluded Erwin. "We build dedicated support pods for certain customers, instead of mass call centers, which customers don't like."

"Customers want private racks, storage, backup, load balancing, and firewalls," he added.

Customer segmentation, employee cooperation
To deliver this, the techies and the suits have to work together. One techie told him, "we used to be run by James T. Kirk and now we're run by Jack Welch." Erwin said it was intended as a put down but he took it as a complement.

Erwin said he has segmented his customers into four groups with very different needs: resellers, hobbyists and enthusiasts, content delivery networks, and bricks and mortar.

In segmenting the business, he also built procedures for handling day to day issues. "We brought process into what had been a cowboy world," Erwin said. "We had to think things through before we offered them for sale. I was in a meeting and a customer had a complaint and my techie said, 'technology breaks'. I'm glad I was across the table from him because I wanted to kill him."

He got everyone in the parking lot and took a group photo and told everyone they had to work together. This sort of thing doesn't always work well. "We teamed geeks and suits and played a version of The Newlywed Game and it was a disaster."

Focus
"IT services must be affordable and reliable 24 x 7 x 265," Erwin said. So he sold everything that wasn't including dialup and shared hosting.

"We built a new call center, launched new reseller and affiliate programs, and moved customers off month to month and onto annual contracts."

He had managers call existing customers to get feedback (something Dan Hoffman calls "reference-ability"), asking simple questions such as, "would you recommend us to a friend."

He sent out e-mail postcards asking for feedback. 29 percent replied and of those 88 percent were happy. "The unhappy customers were usually because of something we'd done wrong [and could learn from]."

He strives to motivate people to come to work by making work rewarding and building career paths. He said he wanted people to come to work like Fred Flintstone, yelling, "yabba dabba doo!"

He concluded with a chart that summarizes the speech:

—End