MaximumASP Weblog

What is the Price Point for Quality?

From the desk of Wade Lewis:

Over the years hosting has gone through many changes, both in the types of services offered and the relative price points for each level of service. Remember when dedicated boxes started at $400 per month, and bandwidth pushed $500+ per Mbps? In those days, the gap between shared and dedicated could be a wide one, and without stepping stones like Virtuozzo, VMWare, and Virtual Server to form an intermediate step both in price and management toolset, many users were hesitant to make the jump.

Fast forward to the present and look at where things stand. Dedicated servers have dropped in price to less than where high-end shared platforms used to be, VPS plans using virtualization technologies from any number of vendors are now priced often times where mid-level shared account used to be, and some companies are still trying to make a buck on sub-$10 per month shared accounts despite pressures from GoDaddy, Google, and Windows Live initiatives.

I spend a part of each day scouring blogs and forums looking for other operators’ thoughts on running a hosting company. One thing that many veteran and rookie hosting providers echo is, “margins are slim, everyone seems to be commoditizing the industry, how am I supposed to compete?” These observations are not far off base if you are looking at the current hosting marketplace strictly by the numbers. Even I shake my head sometimes when performing cursory margin analysis, on a purely speculative basis that is, on competitor plans. I assume that many of these folks are pushing overselling to the limit, are firm believers in the “loss-leader” concept, or are hoping that none of these individuals are going to ever actually need support.

So, as has been mentioned time and time again, the way to differentiate yourself is through customer service and customer experience. I think that two proofs of this theory come from ourselves and from a competitor, and interestingly enough, prove the theory from completely different angles. MaximumASP has been in existence since 2000, in that almost 7 year span, we have maintained almost 99% retention of our clients. How did we do it, support, support, support, and reminding ourselves daily that these folks are who are paying our salaries. This number is one of the most important indices off of which we base our success and value as a company, and it seems to be working. On the flip side, let’s take a look at some of the problems faced with customer service changes (particularly a decrease in quality) when companies merge or are acquired. The current debacle in Houston and Dallas is a prime example of where two solid companies, not perfect companies, but solid business models with solid support in general, are consolidated and customer support suffers. It would appear from research in the last couple of months that customers are being churned out at a rapid pace, and new customer acquisition is likely suffering as word spreads (all of this is speculative and garnered through reading customer comments on the Web).

So support is the key to retaining clients, but how does it attract clients and how do you articulate it to those folks that do not have any first-hand experience with your company? Herein lies the biggest challenge for marketers on the payroll of hosting providers that truly offer quality support and service for their clients. How do you articulate the value proposition, the level of support, and the quality of infrastructure that a potential client will be receiving in a space that is 120 pixels by 30 pixels, or 400-odd pixels by 80 pixels? You can’t, and that is why you see so many hosts default to the flashing “Dedicated Servers Starting at $39.95!!!” Do we have to use price as a primary decision factor when we have all of these other great things going for us? No fair! In this constant limbo game of how cheap can a plan go, do customers understand that quality does come at a price? I would argue that many do. I would also argue that many do not. It is easy to say you have great infrastructure, that you have great support, and that you use quality equipment, but all of these things cost money, and those expenses must be built into the price point. So going back to support, want to know what one of our largest expenses is, and in turn one of the largest cost contributors to your hosting plan’s price here at MaximumASP? Data center? Close. Connectivity? Close. Personnel and Training? You got it, and that is what provides the support that makes us different from the guy that is half the cost, and what we are counting on making you a long-time customer. We have watched many of our customers grow from $2400 / year customer to $24,000 / year customers and that certainly proves the business case for treating every customer right, particularly when the lifetime value of that single customer could easily hit six-figures!