Post on 28-Jan-2018
Prot margin represents a correlation between the revenue you generate and the expenses you incur. Everyone
aims to reach a high margin, however, many fail on half way. In this presentation, we'll analyze the main
mistakes while getting high margin and the key points that are considered as a lifeblood of cloud hosting
business based on the experience of service providers worldwide. The problems you face while running your
business are most likely the same within hosting community, so we compiled the best practices of your
competitors to help you increase the margins.
THE LIFEBLOOD OF HIGH MARGINin cloud hosting business
Agenda
Almost everyone who runs a business was thinking
how to make much more money and at the same
time spend less - this is exactly the topic of this book.
WHAT IS THE MARGIN
WHAT PROBLEMS LEAD TO LOW MARGIN
WHAT SOLUTIONS CAN HELP TO INCREASE MARGIN
What is a Margin
Margin is the difference between product or service price and
its cost of production
Actions inuencing the margin
Increase the price
Decrease production cost
1
2
ProductPrice
Margin
Production Cost
What is poisoning our businesses?
PROBLEMS
Commodity is a Core Problem of Low Margin
Even something that seemed unique some time ago, becomes commodity
VPS Amazon
As you can see, such big companies as Amazon and DigitalOcean offer VPS, but their offerings are very alike.
VPS Linode
Some vendors provide more resources for the same price. This makes the offer more attractive for end users,
but, at the same time, decreases the prot for hosters as in order to gain the same margin they should be more
effective in the production cost compared to the previous two companies.
Low Quality Products
Low quality products can be sold with high margin, but people will quickly realize that the price does not
correspond to the quality, and no marketing will help you with high churn.
Just imagine a situation that you invested signicant sum of money in a new product launch and an initial
marketing pack of this product, so leads are coming. But as usually, customers have questions and require an
appropriate support from your team to get started with offered solution or x some issues they faced during
the product usage. And if your team fails to deliver the expected quality of support, the customers will start to
churn, so as a result you may lose money w/o meaningful outcome.
Low Quality Support
Inadequate Pricing
That is why it is better to analyze pricing of your competitors,
prepare polls and gather feedback from real users, - all these
would help you to get closer to customers̀ expectations.
There are two main issues you should take into consideration while specifying the pricing:
Too high price frightens and signicantly narrows a number of potential customers
Too low price makes a customer suspect low quality and pushes away
Wrong Target Audience
It is a common problem, when providers try to reach everyone but no one in particular, or just
going with offering/messaging that is not suitable for particular market.
Lack of Automation
Lack of automation usually causes signicant delivery delays and human mistakes. It’s always quite stressful
and appears to be a bottleneck for the further scaling of your business. At the same time, ineffective
automation can bring even more mess into your business, as you will have to spend more internal resources for
the production and maintenance of your product.
What is the secret elixir?
SOLUTION
The First Step is to Admit That You Have a Problem
Find out what hidden barriers block your company from getting high revenue: prepare an internal business
analysis and discuss with your team how to change this situation for the better.
Value Inuences the Margin the Most
Сustomers make a choice and pay us money based on the value from our services and products. Value depends
on price and quality: it can be the quality of a product or customer services.
We highlighted customer service in red, as hosting service providers have total inuence on it compared to
other attributes of value and can change the situation drastically. Since price depends on the market situation
very much, you have limited boundaries. Also, the majority of hosting providers offer services based on the 3rd
party solution, so you can’t change it signicantly unless you have a strong R&D team. And quality of end
customer services can be used as a leverage for increasing the value of your products and, as a result, the
margin itself.
Value QuadrantValue quadrant can be a helpful tool to understand the company position on the market.
Selling low-quality product for a low price means offering commodity value to end customers
The situation can be even worse if you sell low quality products for a high price
Better variant for customers would be if you sell high quality products for a low price, however it does not maximize your margin/prot
The most preferable case is to offer a combination of high quality and unique decent solution, as customers are ready to pay more for such products
Decide Who You Want to Be a Hero to
Customers spend
10%50%
Money
Deciding on your target audience appears to be rather obvious task, but many hosting providers ignore it for
different reasons. According to 20/80 rule, 20% of customers brings 80% of revenue. From our observation,
about 10% of customers provides 50% of revenue. So it’s much more protable to target small/specic group of
customers than expanding your target audience as wide as possible.
Pricing FormationWhen we dened our target customers, it's high time to gure out what kind of pricing we can
offer and what margin can be expected. There are 3 types of pricing formation:
Each type has it’s own advantages and disadvantages, but in case you want to maximize the prot, consider the
value-based pricing as the most appropriate variant.
Value Based PriceThere are 4 major steps for dening value based pricing.
The main idea is to maximize the price without causing too big churn of potential customers.
Design Your Product
While designing the product focus on your strong side, taking into consideration such main vectors in hosting
industry as technology, support, expertise, and infrastructure. Dening your strong point will differentiate your
product from dozens of other solutions.
Technology unique in your market
Support services of high quality
Expertise in a specic area
Infrastructure reliability and high
performance
Technology Unique in Your Market
Unique solutions give more space for a high margin business: do not forget about commodity which remains
to be the core problem of low prot.
Elastic VPS
It’s not easy to change the more or less working business if selling the commodity product for a long time. But
be creative, as there always exist several options, that can make your product different.
For example, instead of common VPS, offer Elastic VPS with possibility of auto scaling and pay as you use
charging system. Scaling and clustering are very hard tasks for many customers who buy VPS, that is why
solving this problem will add signicant value to your offerings, being crucial decision-point for end customers.
Managed Docker Hosting
Docker adoption is growing, and there are still many undiscovered opportunities for hosting providers. We
believe that containers turn to be a massive shift in the cloud industry (as it already happened with IaaS in the
past). So do not miss this wave and the opportunity to monetize Container-as-a-Service(CaaS) in your local
market. Of course it may become a commodity sometime in the future as well, but these days containers
unleash boundless possibilities for a high margin businesses.
Solve One Specic Problem
Focus on a specic niche. Some providers already do this for well known applications like Magento or
WordPress. But there are lots of other apps and stacks that are still not that covered with managed services, so
analyse the needs of your local market and offer your expertise together with high performance of your
hosting.
High Quality Support
High quality support is a “must have” for a high margin business in hosting industry, otherwise customers will
not stay for a long time with you. If you are not able to provide a high quality support services for everyone,
then at least set the right expectations to you potential customers.
Support Level Examples (monthly price)
You can dene support tiers. In such a way, end customers will have a right perception of the value they get for
different price.
Social Proof
Be sure that the information about the level of support services spread out quickly via social media and forums.
And your hard work on improving communication with customers will pay back to you, as positive or negative
online reviews make a big impact on end customers decision. Due to BrightLocal research 84% of people trust
online reviews as much as a personal recommendation and 74% of consumers say that positive reviews make
them trust a local business more.
“72% of customers said that positive online reviews made them trust a company more, and 88%said that they trust online reviews as much as personal recommendations.”
BrightLocal Survey
Monetize Your Expertise with Extra Services
You can monetize your expertise by providing extra services based on experience of your team.
DevOps Automation
The vast majority of software development companies place a great emphasis on the process of continuous
integration and rapid delivery of new versions of their product. And when supplying enterprise-level projects,
such DevOps processes need to be automated as much as possible. These tasks can be not that trivial for
developers and also can move their focus from the core technology they develop. So many of them will
consider it more benecial to pay you for making it fast and with high quality than spending human and time
resources of in-house team.
Building Custom Application Architecture
Another signicant approach is to help your customers with complex architecture design.
Managing Virtual Private Cloud
Think about managing VPC or multi-cloud. These days customers do not like to be locked-in at one cloud
provider, and, at the same time, they are struggling with complexity of different infrastructure management.
But YOU know how to manage the infrastructure, as it’s a core expertise for majority of hosting service
providers.
Migration from VM to Containers
Customers are interested in migration from VMs to containers to be more efficient but decomposition of legacy
application can be a real blocker for them and this is where you can help if having the needed expertise. At the
same time, if you are going to offer your hosting services on top of containers, this will increase infrastructure
utilization and decrease TCO.
Infrastructure Reliability and High Performance
Be sure to think about your efficiency, about reliable and highly available underlying infrastructure where
customers run their applications and services.
Start Little but Strong. Grow Eventually
Buy or lease high performance hardware
For a high margin business it’s better to invest into a smaller but better and highly performed hardware. Later,
after you earn some money from this small infrastructure, you will be able to reinvest the margin into the
infrastructure expansion.
Multi-Region Availability
To differentiate you can offer several regions in different locations for bigger customers that are looking for a
highly reliable datacenters across continents.
Empower Your Infra
For TCO decrease:
Containers for high density
Hibernation of inactive applications
Automation of updates, monitoring and troubleshooting
Software-Dened Solutions
For Customers:
Backup by default!
Live migration for maintenance
without downtimes
Shift Your Mindset From Quantity to Quality
Always Evolve
Technology
Performance
Support
Managed services
Automation
Pricing competition
Always evolve! Everything becomes commodity if it gets traction from the market. Smart competitors do not
sleep. Do not relax for a long time even if your business brings you a high margin at the moment.
THANK YOU!Grow your business with
@Jelastic jelastic.com