The two biggest challenges facing any service provider are the problems of service differentiation and how to retain customers against the competition. This is especially true for the hosting industry, where many providers offer the same basic services and compete on price alone.
Competing on price alone is a dangerous game – in recent years we’ve seen many examples of service providers going to the wall or suddenly spiking their prices when they found themselves in a race to the bottom to undercut the competition. Such business practices are unsustainable.
That’s why, over the last couple of years, there has been a welcome trend of hosting companies seeking to differentiate from the competition by adding value to their packages. The idea is that customers are no longer paying for just the connection, call time, bandwidth or storage, but rather they are getting additional value-added services all from the same provider.
In the bid to win SME customers, one core area where service providers have tried to add value is through offering applications. Fortunately, the advent of cloud computing and SaaS has created a big opportunity for hosters by fundamentally changing the way in which applications are delivered. Previously, the most advanced business application a hosting company could offer a customer was email. Even then it would have been a very basic webmail interface, and the protocols for plugging it into an email client such as Outlook or Thunderbird.
Now, as apps are delivered through the cloud, service providers can not only offer sophisticated email products, but also full suites of business essential productivity software all bundled nicely into one package. This is advantageous for the providers that can offer customers more than just the basic hosting and messaging services, and also beneficial for SMEs as they can now get the tools they need to operate from a single provider in a tidy subscription package.
This is undoubtedly why GoDaddy announced recently that it would offer its customers a bundled package including Microsoft Office 365. However, this particular value proposition is flawed, and in truth could actually harm its business. Sure, GoDaddy customers can now get a full productivity suite. However, for value added propositions to be successful, there needs to be a degree of exclusivity which can make them a ‘sticky’ offering.
Office 365 can be purchased from a range of outlets, not least Microsoft directly. Any GoDaddy customers considering changing service provider will not even stop to consider that they might lose access to 365, because essentially, they won’t. If they liked using the Microsoft product, they can simply pick up where they left off; they will just have to pay the bill to someone else.
By making this move, GoDaddy has shrunk the value creation of selling to its customer base, with all its hard work, including customer ownership, being handed over to Microsoft. Instead of enjoying customer retention, recirculation and revenues, GoDaddy will stand to face remorse, rejection and regret. This is because proprietary systems such as Office 365 have very little to offer service providers in terms of adding value. The rigid nature of proprietary systems means that there is no opportunity for customization or ‘white labelling’ and the reality is that the customer will feel they are getting something generic that can be obtained from any number of other outlets. In this case, all GoDaddy has now become is another outlet in Microsoft’s already sprawling sales channel.
If service providers want to offer unique, exclusive apps, they need to look at open source alternatives. The flexibility and adaptability that can be offered in this way is unparalleled, especially when delivered through the cloud.
For example, with an email system built on open source technology like OX, applications including document editors, collaboration tools and more can be seamlessly incorporated, so that users can manage all their data in one place, but without any additional security risks. With such an open source, private cloud infrastructure, users can avoid storing their data in a proprietary vendor’s cloud servers, where its portability is limited and susceptible to vendor lock-in. This means a trustworthy and open home for one’s digital life.
If the Internet giants of today continue to lock customer data into proprietary systems, they will fail to provide the user experience necessary for a true value-added service. It’s not enough to give your customer a great piece of software; they need an experience they will think twice about ever leaving behind.
About the Author: Matt Russell is a web hosting and Internet industry veteran, currently serving as Vice President of Hosting at Namecheap.com. With more than a decade of experience, Matt started his first web hosting business at age 16, and has built and sold three hosting companies to date. He travels frequently to conferences including World Hosting Days, Internet World, HostingCon, Pubcon and cPanel Conference.