When Andreas Gauger was younger (not to imply that he’s old; he’s only in his mid-30s), he could break an apple in half by twisting it in his hands. These days, he’s got much more impressive powers. As chairman of 1&1, he presides over a $3 billion+ global empire.
When we met up in New York last week, Andreas gave me a quick intro to 1&1′s portals and Internet access businesses: Web.de/GMX together generate 4.5 billion monthly pageviews and reach every other German web user. 1&1 DSL’s 2 million+ customers made 900 million minutes of VoIP calls last month. Better yet, Andreas recently negotiated a deal that gives them access to movie downloads.
And then our conversation turned to web hosting, the only service 1&1 offers outside of Germany. I gave Andreas a hard time on overselling: 1&1′s $3.74 hosting plan includes 1000 GB of data transfer, which creates the perception (I think) that bandwidth costs next to nothing. But he pointed out that all-you-can-use bandwidth has become the norm among German providers. There are restrictions, of course. No video chatrooms, no streaming media…
I wondered whether these rules would preclude 1&1 from landing large scale, complex hosting accounts, and Andreas smiled. Who wants such accounts? Not him, that’s for sure. So 1&1 wouldn’t build me a custom-configured cluster, even if I asked? People ask all the time, Andreas said, but the answer is no. It just doesn’t fit within 1&1′s business process – which, by the way, is hugely successful. According to Netcraft, 1&1 is the world’s largest web host.
Andreas’ comments reminded me of my conversation with Rackspace‘s Graham Weston at Tier 1′s Hosting Transformation Summit. Graham said he decided to sell ServerBeach because unmanaged hosting just isn’t what he does. And Rackspace, too, is kicking ass in the market Graham has chosen to focus on. Check out Rackspace’s press release on its Q2 financial results: 59.5% revenue growth and 1,100 new customers!
But enough about Andreas and Graham. What’s your company in the business of?
(PS – I just came across two different VCs’ analyses on the notion of “business model purity”. Max Bleyleben of Kennet Partners in London and Will Price of Hummer Winbald Venture Partners in Mountain View both point out that Salesforce.com’s valuation is 2x higher than RightNow Technologies’ [relative to each company's annual revenue].
They say as a pure-play SaaS provider, Saleforce.com enjoys tremendous advantage: easier scalability, stronger messaging, faster growth. RightNow, on the other hand, offers vendor-hosted as well as customer-installed software. Its CEO argues that he’s following the market, but both VCs disapprove of this approach. They insist that a dual track business model increases costs across the board, introduces undesirable complexity and jeopardizes long-term operating leverage.)
