Kate's Comment

Thoughts on British ICT, energy & environment, cloud computing and security from Memset's MD

Modeling services…

Yet again I find myself tweaking our financial business model (essentially just a rather bloated and overly-complex spread sheet) and it reminded me again that dedicated server providers like us are slightly unusual in a business sense.

At a really crude level, we buy in hardware, mostly Dell and Sun servers, setup their OS and applications, plug them into a rack with some electricity and network connectivity, and then rent the package to our client, along with various monitoring, security & management services. We are not actually selling anything physical though – just a service, yet we are providing something physical in a sense.

What is a little different is that, like a mobile phone provider, we don’t want to charge you for the hardware up front – we are just interested in the rentals. That is a growing trend in recent decades it seems; everyone wants repeat-revenues. The days of the hard-won monthly sales target and a need to constantly win new business to survive are waning somewhat – perhaps that is indicative of our nation’s move away from manufacturing and towards services, or perhaps it is just that business owners like me prefer not to have to loose sleep when there is a tough months on the sales front. 😉

Perhaps the most unusual thing about this business, though, is credit – or rather the lack of it. We do not give our clients any credit (Internet Service Providers [ISPs] do not tend to) but our customers seem quite happy with that. We do have some fairly hefty up-front expenditure (one of those servers can easily set us back well over £1,000) which is perhaps why people don’t mind, especially when we tend not to charge setup fees. From a business perspective though, it is wonderful! We don’t have to chase people up and worry about bad debts, our cash flow is nice and positive, and the bank manager loves us!

Overall it does give us significant admin and finance savings, which our customers benefit from in reduced prices. Yes, they are loosing out on a month’s interest at the bank, but that is hardly a large price to pay!

One frustration from my business owner’s perspective though is that we have a big pot of money that is actually our clients; we can use it for things like capital expenditure but it is not countable revenue until we have provided the service that it was paid for, but one can’t complain – I’d far rather have than than a big overdraft.

The last difference is that unlike even most similar rentals-based models such as mobile phone operators, or even many of our own competitors, we do not tie our customers in to long contracts, and why should we? By not doing so we are ensuring that we must maintain our quality of service and not let our customers down, since if we do they will leave. Talking as a consumer for a moment, I would certainly rather more companies had the faith in their own services to rely on our having a good relationship in order to retain my business.

Anyway, enough prattling – I need to get back to trying to predict the future or my board of Directors won’t let me have any biscuits at the next meeting! 😉

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