I finally feel comfortable saying that we’re in the business providing Internet infrastructure. While software as a service is just starting to take hold, it already has different flavors like infrastructure as a service (IaaS) or platform as a service (PaaS). They are essentially the same model but the products are marketed to a different segment. We just happen to offer core Internet services as our SaaS-based service.
How we do things is completely different than traditional product companies. We think about pricing, staff, and customers in a different light. Our customers are typically with us for an extended period and so are our commitments to vendors. We constantly deal with revenue recognition since we are paid in advance but render the service over time. It does mean good cash flow though.
The cost structure is pretty fixed, like a hotel with a million rooms. We need to keep a front desk going, concierge, people to run the building, etc but we can just book more people! It’s the principle of zero/small marginal costs where each incremental customer is really no cost. What we have instead are these step functions where we have to make major, system wide improvements to keep up (think about adding another elevator, upgrading all of the TVs, opening a new restaurant).
What we do is sticky enough where you don’t want to change it all the time (chance of it breaking) and it’s not always top of mind. It’s also true when we’re building our network since we’re in things for a longer period of time and there’s a lot of inertia. With almost 20 sites, we have to refresh 8 a year, do more build outs, and upgrade a handful.
The model isn’t new, you see cell phone plans and cable bills the same way and it’s because they have lots of fixed costs and can put a lot of people on the same network – sometimes too many. We like predictability in terms of our clients and our vendors because there are so many other unknowns.
It’s a fascinating way to do business and glad to see more people thinking about it.