Plan B for IT – Don’t be a Sticky Revenue Victim

 

Monthly Recurring Revenue on fixed term contracts is the godsend of predictability and high valuation for any type of service business.  Even better is Monthly Recurring Revenue that is “Sticky”.

Sticky revenue is generally tied to charges for services that would be difficult for a customer to change, replace or cancel.  For a service provider the revenue practically becomes an annuity they can count on.  Sticky revenue ultimately leads to overall low contract churn rates even when the provider isn’t providing quality technical service or a good customer experience.  Ultimately, Sticky Revenue is an enormous benefit to technology vendors but can become a nightmare for customers who don’t have a Plan B for their IT.

Six Tips to Avoid Being a Sticky Revenue Victim

  1. Recognize your position early: Before entering into a fixed term contract understand how difficult it would be to make a change when that term expires.  It’s critical to understand the overall cost, level of internal effort and timeline would be to execute a change.
  2. Understand the rules of contract changes and additions:   For example, not being able to add services coterminous to the initial services can create a real issue when the initial services are up for renewal especially if those services are functionally tied to each other.  This is an item that needs to be reviewed and clearly understood before the initial contract is signed.
  3. Don’t Count on the Sticky Revenue Vendor to help you: Even the most honest of vendors is not going to put a red flashing light on their sticky revenue and warn their customers they could be getting much better rates. Taking care of their business is what they do all day, every day.  Good ones (ones you would want to invest in) know exactly what their profit margin is for every single customer at any given moment. They have no interest in reducing that profit margin for themselves or their investors so it is incumbent upon You the customer to be prepared.
  4. Start Early in Negotiations: Starting a negotiation late or too close to a renewal date is probably the most common blunder made by customers. Never underestimate the intelligence of your vendors.  They know if a customer is prepared to make changes or not.  Showing a vendor that you are ready, willing and able to make a change levels the playing field in a negotiation.
  5. Stay in tune with the current market: This is easier said than done as most IT departments don’t have the internal resources, experience or expertise in all the services that would be applicable to sticky revenue.  It is absolutely critical to know if market rates are going up or down for any given service.  Typically in IT most services go down in price per unit as competition and efficiency increase.  Also understanding the benefits of new service models or pricing models that emerge can be of high value which can create a competitive advantage in service delivery for organizations deriving direct revenue from their IT.
  6. Embrace Vendor Neutral Expertise:  There are a growing number of provider neutral advisory firms like Kiamesha Global that have hands on experience within the various sectors of the IT service provider community.  Leveraging this expertise can be of enormous benefit to organizations that do not have the time to concentrate on constant market movements or to field an abundance of calls from direct sales representatives.  Whether looking at new services or evaluating existing contracts, vendor neutral expertise can indeed help to keep you from being a Sticky Revenue Victim.

About the Authors:

Todd Smith and Kevin Knight are the principals of the data center marketplace advisory firm Kiamesha Global LLC (www.kiameshaglobal.com). 

If your organization is considering the potential benefits of a data center relocation, expansion or simply want to better understand your current situation and options around data center build, colocation, cloud, wide area network or data migration services in the data center marketplace, Todd and Kevin can be contacted via e-mail at tsmith@kiameshaglobal.com and kknight@kiameshaglobal.com.

Data Center Wars San Antonio – Underserved with a Bright Future

A special thanks to Mario Hernandez, Tom Long and the entire San Antonio Economic Development Foundation team for their hospitality in providing me and a handful of other data center market consultants (including one of our business partners Andrew Marcus of Transwestern Real Estate) an in-depth three day tour of the San Antonio Technology Scene last month.  If you or your organization have an interest in learning more about San Antonio’s data center market please contact me directly at 713 553 5123 or tsmith@kiameshaglobal.com

 

As one of the largest and fastest growing metro areas in the United States with a vibrant, well-diversified economy, San Antonio has a storied past, a thriving present and a future with significant upside.  With a strong foundation of economic strength in public and private sectors, San Antonio has many ingredients that make it a serious contender in the data center market and overall technology space.

From AT&T to Rackspace & Microsoft

While AT&T still maintains a significant corporate presence in San Antonio, it was surely a blow to the City of San Antonio when AT&T relocated its headquarters to Dallas in 2008.  Rackspace, a late 1990s upstart founded in San Antonio by local Trinity University students has picked up much of the slack as it has emerged as a managed cloud computing powerhouse with over 6,000 employees globally (A sizeable % of those in San Antonio) and nearly 2 billion in annual revenue.  Since 2009 Microsoft has made massive investments in San Antonio with major data center builds and investments in clean energy initiatives.  These developments have more than made up for the partial departure of AT&T.

Cyber Security Hub

Home to numerous US military bases including Lackland and Randolph Air Force – San Antonio has a rich pool of cyber security talent to draw from as this sector becomes increasingly in demand.  Current Department of Defense cyber security operations are plentiful and private security firms are popping up to support these initiatives.  Due to the secrecy of much of the federal operations San Antonio’s image as a cyber-security powerhouse hasn’t fully come to the forefront but the secret is definitely finding its way out.

Proximity to Austin

The Texas capital city of Austin, while smaller in size and without the military foundation, still has a clear cut advantage over San Antonio when it comes to image as a tech town.   Austin is simply a more popular place to be in the eyes of many millennial techies.  With both cities growing at an accelerated clip – With only 70 miles between borders they will at some point become a join metro area much like Dallas/Fort Worth.  A Greater San Antonio / Austin of the future could become a true global, techno juggernaut.

Private Enterprise Data Centers

San Antonio is home to numerous major corporations in various sectors with significant data center requirements that are largely filled internally.  USAA, Valero, Tesoro, HEB, CPS Energy, Frost Bank, Clear Channel Communications and Security Service Federal Credit Union are some of these notable names.  San Antonio has become notable for its large private enterprise data center builds although the ones we have run across are typically far overbuilt in terms of size and capacity to serve the needs of their owners.   They also have come with extremely high price tags often 2 to 3 times higher per megawatt of infrastructure when compared to commercially available green field or colocation sites built to similar security and reliability standards.

In most cases, building and operating your own data center facility has been proven to be an inefficient model, one that is fading away at a rapid pace as data center operators are able to show enterprises around the globe how expert they have become at building robust, secure, redundant, accredited facilities at a fraction of the cost.

Commercial Data Centers

Stream Data Centers and CyrusOne both have a major data center presences in West San Antonio that are focused on serving the wholesale and enterprise colocation space.    For sizeable organizations looking to outsource production or large secondary facilities – these are the only real options within Greater San Antonio at the present time.

SATC is a local provider in North Central San Antonio that caters to small/medium size local businesses with office, connectivity and by the rack colocation services.  CityNap located downtown and Site B Data Services located on the near West side also cater to the SMB markets with a range of managed and carrier neutral services.  XO and Level 3 offer a typical carrier colocation services without bells and whistles.  Geekdom a tech startup incubator offers low cost office downtown office space and services to support local entrepreneurs.

Overall for the size of city with so many large enterprises this is presently a very lean market with very few options for outsourced data center services.

Market Advantages for Commercial Providers

Commercial providers should be seeing the lack of current competition as an opportunity.  There are also additional cost and risk advantages that are significant.

One major advantage commercial providers have to attract business not just in San Antonio but outside the area is its very low relative cost of power.  With multiple mega-watt use the net cost per kW/hour can be as low as $.05 which is significantly lower than neighboring Austin.  For high power data center usage this can result in dramatic savings.  Land is also plentiful and even though attractive areas for data centers like Westover Hills are getting tighter there are still other areas to build with attractive power and connectivity assets that will work quite well.

San Antonio is absolutely of the best locations for disaster avoidance.  There is minimal possibility for earthquakes or severe weather of any type to occur.

The Future

San Antonio is well on its way to becoming a real player in the US tech scene.   For the data center industry it is surely an attractive spot to put build a facility for cloud services or colocation services due to overall low costs and low risk of natural disaster.  Building green field may be an option but at some point some of the overbuilt enterprise data centers may be the best route to entry.  Some of these owners will surely come to the conclusion that selling their private data center asset to a professional operator and allowing them to lease the unused capacity to other enterprises is a safe, secure and likely wise financial decision.  Regardless of the path it takes the sheer growth of San Antonio’s industry will lead to a more developed data center marketplace.