iPhone 5 Predictions

While I have been busy posting about the Durbin Amendment and how it can save you money, REALLY important things have been happening.  We all know the new iPhone(s) will be released tomorrow, so I’d like to predict what features I think the new phone will have. It seems like everyone is doing it, so I didn’t want to be left out.  

1.  The new iPhone 5 will have a 5″ AMOLED edge-to-edge super luminescent flux capacitance touch screen.  After all, they’re calling it the iPhone 5, so the 5″ screen makes sense.  It also lines up with the phone my friend Stacy found in a bar in Tijuana that was left behind by an Apple engineer.

2.  NFC.  The NFL has long debated getting into the smartphone and transaction processing business.  The only question was whether it would be the NFC or the AFC, and tomorrow we will find out.  Being an Eagles fan, I’m betting heavily on NFC.  Not only will this revolutionize they way we pay, but it will have a built-in feature allowing you to receive payments from former Iraqi generals and rich Saudi Arabian widows looking for your help to securely move funds out of their country.

3.  Apple A9 processor.  It’s a lock – they’re skipping 5-8 and going straight for the A9.  My friend’s cousin is friends with an Apple engineer on Facebook, and they confirmed it.

4.  A 4 megapixel camera. If Apple taught us anything, it is that less is more. So we all know that by subtracting 1MP from the camera sensor, pictures will look even better.

5.  3G radio.  You were expecting 4G?  Didn’t you have the original iPhone that only ran on EDGE?  Remember, less is more.  You’ll be so dazzled with the new screen and blazing fast A9 processor that you won’t notice how slow your connection is.  If you have suffered with ATT for years, you’re used to it anyway.

I mentioned that a lot of other blogs were getting into this prediction game.  If you want to see some pretty ridiculous rumors, you can check them out here. 

Are you ready for the Durbin Amendment?

In just a little over a week, the Durbin Amendment to the Dodd-Frank financial reform bill goes into effect.  Are you ready?  More specifically, are you setup to actually reap the savings, or is that all going to your payment processor?  For in-depth information on the bill, check out our report here.

This law only impacts debit card transactions, which is probably a small part of what you accept, but you probably take more signature debit cards (the ones with a Visa and Mastercard logo) than you might think since they work just like a credit card from the merchant perspective.  No pin required.  The more consumer and small business oriented your business, the higher your proportion of debit cards probably is.  In a nutshell, the Interchange cost for debit transactions is being capped at 23.5 cents plus 5 basis points (0.05%) per transaction.  The law goes into effect October 1st, and we will be counting down to implementation on the Host Merchant Services blog.  Currently you might be paying rates as high as 1.5-2.0% plus per item fees of up to 50 cents depending on your merchant services agreement.

If you are on Interchange Plus pricing, you are in line to take advantage of sginificant potential savings from this legisltation.  If you are on tiered pricing or some other less advantageous pricing methods, the benefit will go straight to your processor’s bottom line.  

Duh, Reed, it was sarcasm!

Ok, apparently I’m a lot more influential than I thought.  I’d like to apologize to Netflix subscribers for the price increase.  Apparently, their CEO would like to apologize too.

http://www.cnn.com/2011/BUSINESS/09/19/netflix.ceo.apology/

In case you missed it, I’m sure it was my blog post that set Netflix on the path to ruin. Check it out here:

http://bit.ly/pUxWEq - Three Surefire Ways to Really Juice Your Business

Apparently, the sarcasm was lost on Reed Hastings.  Don’t worry Reed, you’re not alone. After that post, I got a lot of emails and calls asking if I was going to raise my customers’ merchant services rates. I also had a lot of people tell me how great those ideas were – you know who you are (Derek). All of that prompted my follow-up post revealing my sarcastic intent and the real message of taking care of your customers for the long haul.

So anyway, since the Netflix CEO apologized, being the culprit for this big mess, I thought I should apologize too! Luckily Reed announced there would be no more price hikes, however those of you that stream too much, call support too often, or exchange too many DVD’s will have your service terminated.

Understanding the debt ceiling debate from a business perspective

As I sat around pondering the politics of the day, I thought to myself that it all seems ridiculous. I can’t decide what is worse – the politicians arguing over the debt ceiling debate or how poorly the topic is understood by most people in America.  I’m not going to argue whether or not it is wise to raise the debt ceiling, or what strings need to be attached to the increase.  It has to be done.  That is fact, can’t be argued, and all the media and political nonsense attached to the “debate” is just that – nonsense. 

Last night I was discussing it with someone and she asked me why the country needed more debt.  To her, like many Americans, more debt seemed to be bad.  If we already have too much debt, than adding more must be a bad thing, right? Well, I explained, the answer is not nearly that simple.  In fact, debt is not intrinsically bad. And businesses acquiring debt are not the same as consumers irresponsibly running up their credit cards as Republicans have inappropriately framed it.  Our government is a business, and government debt is business debt.  You can argue the finer points of the whole “government is a business” statement, and whether or not the government is a good or efficient business, but as a broad approximation that is really the best way to describe it.  The government, as a business, provides useful and valuable services that we can’t live without.  Again, some of them may be debatable (thank you NPR), but in general this statement is true.  And our country is growing, albeit slowly an unevenly.  Here is where debt comes in.  Some level of debt, for most healthy, growing businesses is acceptable and necessary.  Let’s look at this from a web hosting perspective.  XYZHost sells dedicated servers to small businesses.  To do this, they need to provide a datacenter, server hardware, software, and tech support among other things.  While it would be ideal if they could collect money from customers in advance and then go out and buy what they need to provide service, it just doesn’t work that way.  You need capital to acquire equipment, rent space, and hire people in advance of actually signing up your first customers.  And as you grow, the same rules apply. You can’t handle rapidly growing demand unless you utilize debt or your business is very profitable with significant cash flow.  Just because you need debt to grow, doesn’t mean your model is broken or that your business is not successful. Some business types, particularly technology related business that require infrastructure, need more capital than others.  Government is also a capital-intensive business.  So, you’re hosting business is growing and you need capital to expand.

What are your options?  Well, you can borrow money, either from a bank, a leasing company, or even a factoring company that will buy your receivables.  They vary in cost and effectiveness, but they all get cash in your coffers to fund your growth.  Your business can have debt AND be profitable – these are not mutually exclusive as many people believe them to be.  Debt can finance capital equipment, which depreciates over its lifecycle rather than being expensed at the time of purchase.  Debt allows you to buy things up front that you need to do business, but in many cases their cost is essentially amortized over their useful life.  Sorry for business and econ 101 here, but it blows my mind how few people seem to really grasp these concepts.

What else can you do?  Another option to fund your growth is to raise prices for existing customers.  If you’re the government, this is raising taxes.  As I mentioned in a previous post, this can be tolerated to a limited extent, but is generally unwise especially in a tough economic climate.  When you raise rates, these increases generally go right to the bottom line because you are charging more money for the same services.  But if it were that easy, everyone would do it.  If you’re a company, and you get too aggressive with the increases, your customers’ businesses will suffer and they may look elsewhere for services.  The government has a more captive customer base, but in a global economy it is naïve to think that taxpayers, especially corporate taxpayers, don’t have options.  Not only do unfavorable tax rates crimp consumers, one of the engines of our economy, but they also encourage companies to focus business activities in countries that offer more favorable taxation policies.  

So, in summary, understand that the debt ceiling debate has nothing to do with the debt ceiling.  Our country can’t continue to do business without the ability to raise more debt.  You can argue that we need to pay down some of our debt in the long term, reduce spending, and increase revenue, but none of those things really pertain to whether we need to auction more government bonds or start prioritizing payments on August 2nd.  This is simply blackmail and gamesmanship, using something important that needs to be done as a means to a political end.  Whether you are Republican or Democrat, conservative or liberal, you shouldn’t get sucked into this, nor should anyone tolerate or support this behavior from our elected officials.  And maybe instead of blaming them for their awful and childish behavior, we should blame ourselves for electing them.

The worst ideas ever…

You really believed me?  You thought those were good ideas?  Shame on you!  In case you don’t know me, my last blog post espoused some ideas that were contrary to everything I have learned throughout my professional career.  

Fire customers?  NEVER.  Hike prices?  Doesn’t seem smart in this economic climate. Charge for support that used to be free? Now you have surely lost your mind.

Ok, so you agreed with me.  You took the bait.  Don’t worry, you’re not alone.  The thing is, a lot of my points were valid, sort of.  And it’s tempting to do that stuff.  The short term boost is real.  But the long term damage is awful. We can (and probably will) debate whether firing “problem customers” is the right thing to do, but squeezing them in other areas is clearly bad for the long term health of your business.  I think that any customer can be handled in a positive way, and the long term value of treating customers well far exceeds any short term profits you can reap from some heavy handed “business decisions.”  

My point was valid though if you read between the lines and serves as a major warning to hosting companies that might try these techniques.  The fact is that they will work in the short term.  I have talked with many hosting companies that have made many small changes to their business over time.  Each one seemed to be successful, or at least not detrimental by itself.  But they look back and see that their growth rate has fallen from 50% a year to 10% a year.  And do you think they say “wow, we really messed up, all of those things we did really hurt our long term growth prospects.”  Nope.  They say, “wow, this is really a tough economic climate.”  Doh.

When you do the right thing and treat customers well, it is not a short-term exercise.  Every customer interaction is a cost in the short term, but an opportunity long-term.  Business is about building relationships.  Treating people well, both employees and customers, pays off over the long run.  It’s not scientific, I know.  It is difficult to measure the long-term value of going the extra mile for a customer today.   That kind of approach is way too gooey for you buttoned down corporate types, but trust me, it works.  I was involved in a pretty big hosting company that seemed to find a lot of success doing just that.

And no, you never need to fire customers.  Stop blaming “problem customers” for your inability to deliver service.  Sure, it is easy to cut them loose, and more profitable than keeping them around to yell at you.  But if you can find a way to make them happy (and I know you can), not only is it a better solution in the long run, but your whole customer base will probably benefit from the improvements you make.  I know someone will take this bait though.  Tell me why you fired customers and why it was so good for your business.  I’ll be glad to set you straight.

And for those of you that were worried about rate hikes on your bill from Host Merchant Services, sorry to scare you (yes, I got a few calls).  We have a lifetime rate guarantee.  

Three Surefire Ways to Really Juice Your Business

Let’s face it – times are tough. Demand may still be pretty good for web hosting, cloud, or whatever the term du jour is, but we’re not exactly in a robust economic climate either. Sure, that drives some CIO’s to look at on-demand services over expensive in-house datacenters, but if you’re a hosting company owner running a small to medium sized shop, you’re probably looking to find some new ways to party like it’s 1999.  With that in mind, I decided to create a quick article with three simple ways to turbocharge revenue and profitability.

Business Savvy Trick Number 1

Fire some customers!  If you run a hosting company, I’m betting you have a bunch of customers that use way more than their fair share of support.  You know who they are. They call your support center over and over.  They yell at you when their website doesn’t work, even if it isn’t your fault.  If you look at the metrics (you do have metrics right?) you’ll see that it actually costs you money to host them.  I have three words for you – “FIRE THOSE PIGS!”  Trust me, profitability will go through the roof if you can shake loose enough of these bad apple customers.  And you can be sneaky about it too. You don’t have to just outright cut them loose.  Try tripling their prices first!  Those that leave, good riddance, and those that stay, well you just earned the healthy margin on them that you deserve.  

Revolutionary Business Trick Number 2

Raise prices! Even though people might get upset at you for hiking their rate in tough economic times, customers can handle a lot more than you think.  10%?  20%?  Switching isn’t always easy, and really people hate change.  So take advantage of it.  I bet if you hike prices 20% you won’t lose 20% of your customers or 20% of your new business opportunities.  I think the number of customers that stick around and endure a little bit of punishment will really surprise you.  The possibilities here are endless.  I’m talking instant profit!  And this awesome trick probably weeds out a lot of the customers I talked about in Trick Number 1, because those guys are cheapskates.  Seriously, this stuff is so good you’d think I should be charging for it.  No brainer, guaranteed profit!   

Mega-Profit-Boosting Trick Number 3

So, we’ve already fired bad customers and increased rates – but wait, there’s more. What blood can we squeeze out of this turnip you ask?

Start charging for things you used to include for free.  I know, I know.  It’s brilliant.  Free phone support?  Not anymore, that will cost you extra!  Toll free number?  A waste, everyone has free long distance these days.  24×7 customer service?  People don’t really need to talk about their bill on the weekends.  Migrations? Switching to us is not free, sorry.  The list goes on but you get the point.  Be smart about it though.  Start small and work your way up to greatness. Test it out. See what is well tolerated and run with it.  Like I said in the previous tips, I think you’ll be surprised what people can handle, especially if you used to be a really good web host.

After you do these things, pat yourself on the back. Your operation is more profitable and you probably lost a lot less customers than you expected.  Sure, they might be mad at you, but they’ll get over it, right?  This juice was definitely worth the squeeze.

Stay tuned for my next segment – “How to Juice Your Company by Squeezing Your Employees!” 

Anyone want to come work for Host Merchant Services now?  

The truth about outages, data breaches, and other disasters.

Outages and data breaches, based on Amazon and Sony Playstation Network, are the topic of the day, and to a lesser extent, things like the Media Temple DNS outage. Things like this are always making news.  Rackspace has had some high profile datacenter issues, The Planet had a datacenter explosion, Gmail goes down from time to time, high profile sites like Mastercard got hit with a massive DDOS, and popular electronics accessory site Monoprice had a serious data breach.  And those are just the ones I can think of off the top of my head.  The fact is that these things happen. Why do people not want to admit this?  I think web hosts share a good portion of the blame for this perception.  In a competitive industry, with everyone looking to get an edge, the ante has been upped as far as it can go – a pledge of 100% uptime.  In credit card processing I talk about the race to the bottom where everyone can beat anyone else’s price by a few basis points until we are basically giving the service away at Interchange (Visa/Mastercard cost).  In hosting, it’s a race to the top, where the race ended a long time ago and everyone is forced to promise the impossible. It’s cutthroat and despicable, when I post an article about the Amazon outage and I get a web host posting an advertisement in the comments saying “Try us if you are unhappy with the Amazon downtime.”  Really?  Do you honestly think you’ll never have an outage?  Do you think you’re more reliable than Amazon and their billions in resources?  Even if you manage to steal customers away using this tactic, and web hosts have been doing it as long as I can remember, it is an awfully flimsy house of cards you are building. What are those customers going to think when it is your turn to pay the piper?  And don’t kid yourself, your day is coming.  You might not make the Wall Street Journal with news of your outage, but it will happen and it is going to be painful.  Trust me, I know, I was part of PLENTY of painful outages at HostMySite.com.  It was a big driver in my decision to sell the company.  At some point you worry that the next big incident will be it. Will be the end.  Because even though it won’t be, the immense drive for the impossible takes its toll on you.  Not only will your customers be upset, but your competitors will descend on you like vultures.  DDOS attacks, fiber cuts, data breaches, hacked servers, transformer failures, generator fiascos, HVAC problems, been there, done that.  And if you’re in the hosting industry, odds are you’ve been through it too and tried to keep a lid on as much of it as possible. 

So what’s the point of my post here?  We need to get realistic.  As customers.  As web hosts.  As users of websites and online services.  Things happen, sites go down. Our lives are better for having these services, and not much worse off by being without them for a few hours or days.  Life and business go on.  We need to take responsibility when it comes to sharing our personal information, and take care to only share what is necessary.  Furthermore, we need to demand that websites we use only ask for what is absolutely necessary, and we need to have a plan in place to safeguard ourselves for the time WHEN that data is breached.  If you choose to put your information out there, your assumption should be it’s going to really get out there. I’m not blaming the users of Amazon EC2 for not building their apps correctly, and I’m not blaming Amazon for a relatively unforeseeable calamity.  It is a shared responsibility, and furthermore that responsibility flows downstream to the affected users who need to understand that this is a fact of life and move on.  Can things get better?  Sure.  Do we already have an insanely great, awesomely reliable Internet infrastructure available to us from a plethora of excellent providers?  Absolutely. Communicate, fix, learn, improve, and then just move on. The great thing is that time does generally heal all wounds.  

Oh, by the way, as I’m about to hit the button to post, I read that Verizon’s 4G network is suffering an outage.

Outages Shmoutages

As someone currently on the outside of the industry looking in, I have to say that I have great sympathy for the good people at Media Temple and Amazon EC2.  Hosting is brutally competitive, and to keep up with the competition you have to promise the impossilble.  99.95% uptime SLA?  100% availability?  ZERO DOWNTIME NETWORK?  Good luck.  It’s just impossible.  I saw a previous release from Amazon regarding an outage that basically said anything less than perfect was unacceptable and they would not rest until perfection was attained.  Well, good luck with that.  

If you’re a customer of a cloud services provider, you need to take matters into your own hands.  I was impressed to see that one company had done their own work with multi-location failover and minimized the impact of the EC2 outage on their business.  A hosting provider is just a tool to get the job done, and if you have an application designed to run in one server, or in one datacenter, you have to understand there will be downtime.  However if you can take a few providers that deliver somewhere north of 99% uptime on a regular basis, and use them in a solution to distribute your risk, your uptime is going to be pretty good.  Pretty good though.  Because even with the best providers, the best planning, and the most redundancy in the system, there are going to be failure points you probably won’t even consider – until they fail.  

But really, we should be commending the companies that run really good operations.  If they weren’t so good, there wouldn’t be so many great companies that rely on them, and it wouldn’t be such a big deal when they are down.  No one should be happy about downtime, but we should also align our expectations with reality.  And no, I haven’t missed getting those 3 AM calls for the last few years.  Merchant services is quite a bit less stressful.  

Does customer service matter?

So, for various reasons I have been thinking about customer service lately and how to best communicate my vision to my new staff at Host Merchant Services. While there are some similarities between merchant services and hosting, the customer service component is much different. I have been forced to ask myself the question – do merchant services customers care about customer service? The answer is not so simple. Everyone cares how he or she is treated. But merchant services should just work. 

In 11 years of running HostMySite.com, I didn’t have much of a personal relationship with my processor. I liked them because they lowered my rates when I griped, they didn’t bother me much as my volume skyrocketed, and I didn’t incur any significant outages. Honestly I didn’t have a personal contact there, having been with a company that had been bought three times and changed their name once. But the relationship worked. As I look to develop a successful model for selling merchant services, being someone that built his entire success story on the premise of providing excellent service, this presents an interesting challenge for me.  Certainly, my values are the same. I believe in treating people right, all the time, no matter what. I believe in “never say no” service. I believe 100% in those pillars of customer service that guided us for all those years at HostMySite.com. But does it matter here? Does it make us better, or does it just make us less profitable? Profound stuff, for sure.

After much reflection I am still confident that great service makes us better and is essential to building a really successful company for the long haul. Certainly, many companies in this space don’t care about service, and make plenty of money. There are horror stories of distrust, false claims, misleading contracts, you name it. The difference here is that rarely can I get a client to switch if I’m not saving them money. That is the name of this game.  In a business where things should just work, if you aren’t saving money then the view isn’t worth the climb to switch. It is not impossible – there are cases where people have been treated poorly, put on unjustified reserves, or had transactions held up without cause. But it boils down to money, because our job is to make sure the payments get where they are supposed to go, on time, without incident, and with the lowest fees possible.  But service does matter. People might not switch to us for it, but they will appreciate it. 

They will recommend us because of it.  The little things are important. Did I make the customer feel valued? Did I drop off their paper on time? Did I send them the report they wanted quickly and accurately? There are many customers I will never have the privilege of interacting with on a regular basis. That really isn’t much different than hosting. But it is a privilege to interact with your customers, and many companies don’t get that. Every interaction is an opportunity to exceed their expectations and to make them a believer, and if you’re lucky a promoter of your services. If you treat customer service like a cost, something that drains profitability every time it is used, you’re missing out on an opportunity. Advertising is great, but nothing delivers more long-term value to your business than when you delight your existing customers.  You can’t always measure it (although something called NPS – net promoter score is worth looking at).  You can’t always quantify its value to your business, especially in the short run. But I can promise you that it matters, and in many cases it is the difference between success and failure – or at least the difference between being mediocre and being great. Every opportunity you have to interact with a customer is your opportunity to define yourself and your company. Make sure that definition is something you can be proud of.

The Pillars of Customer Service

Many years ago, the good people at HostMySite.com came up with their own Pillars of Customer Service.  These were our guiding principals for many years.  While I have moved on to credit card processing and merchant services , these pillars are still central to how I do business on a daily basis. I am listing them below, each pillar followed by a description created by the employees of HostMySite.com detailing what each pillar meant to them.

HostMySite’s Nine Pillars of Customer Service

Compassion – “We identify with our customers and convey a shared

sense of understanding and empathy to create the building blocks for a

strong customer relationship.”

Credibility - “We overcome daily challenges confidently and provide

truthful answers consistently with no room for uncertainty. We build and

maintain our integrity so customers know they can count on us.”

Exceed Expectations – “We delight customers by being proactive and

going above and beyond what they expect from a Web host to give the

most complete and comprehensive solution.”

Never Say No – “We never respond negatively and continually remain

positive when interacting with customers. Customer satisfaction is our

ultimate goal, so we always find a solution when working with a customer.”

Ownership – “We personally address customer issues, exhausting all

resources to find a solution no less than the best. This ensures every

action leads toward an ideal solution and takes full responsibility for the

result.”

Reliability – “We give consistent, accurate, and timely solutions to

customers. Our 24/7 presence allows us to devote our full attention to

each and every customer issue.”

Respect - “We demonstrate empathy, courtesy, and professionalism in all

of our interactions and solutions by valuing the feelings and interests of

our customers.”

Empowerment - “We have authority, ability, and power to use at our

discretion for any situation where we need to please our customers at any

cost.”

Communication – “We use patience, enthusiasm, and thoughtfulness to

provide customers with accurate, timely and honest information.”