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© 2005 UMFK. 1-1 Everdream internet business models text and cases Donatas Sumyla.

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Presentation on theme: "© 2005 UMFK. 1-1 Everdream internet business models text and cases Donatas Sumyla."— Presentation transcript:

1 © 2005 UMFK. 1-1 Everdream internet business models text and cases Donatas Sumyla

2 © 2005 UMFK. 1-2 Content Overview of the company; Goals & strategies; Sales and marketing; The Everdream product; Customer Service; Economics; Primary stakeholders; GBF analysis; Success or Failure?

3 © 2005 UMFK. 1-3 Overview of the Company Founders were brothers Russell and Lyndon Rives (born and raised in SA); Russell saw an opportunity in he subscription computing market while working at Zip2 in the US; Attracted their first venture firm DFJ by willing to be flexible: –Allowed two board seats and agreed to bring in a CEO and a number of new managers from DFJ ;

4 © 2005 UMFK. 1-4 Overview of the Company Everdream was a pioneer in Internet-based subscription computing for very small businesses (up to 500 employees); Target market – businesses with 20 or fewer desktop PCs; The subscription computing (paying for a computer on a monthly basis) market was a relatively new one; Was a primary vendor providing white-boxes (non-name brand) – 20% of all 1999 PC shipments;

5 © 2005 UMFK. 1-5 Overview of the Company SOHO influence: –The best analogy – SOHO; –In 1998 5.7M very small businesses and 22.2M home-based businesses; –SOHO IT market $51B, projected to grow to $71B; –The average SOHO business spent roughly $7,200 on IT annually, up from $2,000 in 1996;

6 © 2005 UMFK. 1-6 Overview of the Company Everdream’s package included: –PCs; –Software; –Internet access; –One-stop service; Everything for a monthly fee of $150 per computer, with a 30-month commitment after a one-month trial; By Spring 2000 it had 83 employees and had begun selling its systems;

7 © 2005 UMFK. 1-7 Overview of the Company Everdream offered “hassle-free” computing, viewed as “virtual computer expertise”: –Controlled the computing environment; –Provided services like daily backups (via the Internet); –Automatic downloads of software updates and patches; Kept customer problems to a minimum;

8 © 2005 UMFK. 1-8 Overview of the Company When problems did occur: –The customers would never be handed off to another vendor; –If the Solution Analysts could not solve the problem, then a new hard drive, complete with the customer’s applications and data (from the previous night’s backup) would be sent to the customer via Federal Express; This promised a large and loyal customer base on the strength of its core service offering; In addition, the company planned to offer its customers access to a variety of small business- oriented goods and services through BizCenter on its Internet portal;

9 © 2005 UMFK. 1-9 Management Team Gary Griffiths – CEO; Andy Efron – Director of Customer Service (Stanford Business School); Brian Golson – CFO (HBS ’97); Russel Rive – CTO, co-founder;

10 © 2005 UMFK. 1-10 Goals & Strategies Everdream’s mission was: –To “simplify the computing experience for small business”.

11 © 2005 UMFK. 1-11 Goals & Strategies Strategies: –To provide service superior to its competitors by: Reducing the number of problems encountered by customers; –Customers were not given dozens of options from which to choose; –PCs were manufactured with certain safeguards; »Hard disk: the Everdream-supplied software, mirror of that software, and room for other applications; Resolving remaining customer inquiries and problems more quickly and more responsively than other firms;

12 © 2005 UMFK. 1-12 Goals & Strategies Two target markets: 1.Small businesses with 20 or fewer computers; 2.Physically small, remote offices of large companies; The first target market had the biggest sales, however several Fortune 500 companies showed interest regarding serving their remote offices; Questions over targeting vertical markets (law firms) and completely excluding the consumer market;

13 © 2005 UMFK. 1-13 Sales and Marketing Management believed that direct sales force was too expensive; Instead, they planned to use VARs (value added resellers); VARs had excellent relationships with small business owners, but made only slim margins selling PCs (usually 6%); VARs preferred installing networks – higher commissions and labor costs margins; They were not really interested in dealing with calls about issues such as software problems;

14 © 2005 UMFK. 1-14 Sales and Marketing Everdream offered VARs a $250 sales fee plus an additional $75 installation fee (if the consumer chose to have the VAR install their machine); Different VARs: –Small VARs had on average 100 to 160 SB customers, sold on avg 16 PCs/month; were focused on an immediate geographic area and delivered a high level of customer service; –Large VARs were less geographically focused; particular industry segment; shipped between 100-500 PCs/month;

15 © 2005 UMFK. 1-15 Sales and Marketing Some shortcomings with VARs: –“VARs are very conservative and won’t sell our systems until it’s easier to sell an Everdream machine than what they are used to selling.” (by Stavropoulos of DFJ). Solutions: –Several employees worked directly with VARs; –Development of training programs to help VARs learn to sell the Everdream product; –High quality customer demonstration video; –VARs were loaned an Everdream PC for a month;

16 © 2005 UMFK. 1-16 The Everdream Product Hardware; Software; The Dream Side/Flip Side; Customer Support; Company Culture;

17 © 2005 UMFK. 1-17 Hardware Pre-configured, relatively high-end PC; Large monitors or printers available for and additional fee; Alternative PC would cost around $60/month, not including installation, customer support, or e- services (BizCenter); Everdream had automated system that, triggered by an order number, specified exactly what programs, email address and account ID were to be burned into customer’s HD; no human intervention;

18 © 2005 UMFK. 1-18 Software Included applications commonly used by SB owners, including MS Windows 98, IE, and Office 2000 Small Business Edition (Word, Excel, PowerPoint, Publisher, and Outlook); Also included were Adobe Acrobat Reader, Norton AntiVirus, and RealPlayer G2; Customers could add QuickBooks Pro, Act, and Access for an additional fee; All these programs were supported by customer service;

19 © 2005 UMFK. 1-19 Software (cont’d) All machines also included: –six free online training courses for desktop applications such as Word (partnership with Headlight.com); –E-support software from Support.com: Kept certain problems from occurring through use of a “healing agent”; Enabled customers to help themselves through the use of self-service tools; Facilitated remote problem diagnosis and resolution by service providers through the Internet;

20 © 2005 UMFK. 1-20 The Dream Side/Flip Side The “dream side” – where the pre-loaded, fully-supported software resided; The “flip side” – where customers could load other programs, such as games; Purposefully limited and protected the software that they supplied; Everdream could fix dream side problems quickly, or send a replacement hard drive if necessary; If there were problems with the flip side: –First Solution Analysts; –External sources of help;

21 © 2005 UMFK. 1-21 The Dream Side/Flip Side (cont’d) Problem: –It took 1.5min of reboot time to switch from the dream side to the flip side; –Customers were complaining; The computer was reconfigured: –Two “virtual file systems”, allowing core programs to remain protected without making customers reboot to switch between sides;

22 © 2005 UMFK. 1-22 Customer Support Data back-up with unlimited storage; Unlimited ISP connectivity (free DSL if >10 PCs; if not, available at extra fee); 24/7 help desk support; not only problems, but how to use programs as well; Automatically downloaded upgrades and patches; A personalized email account; In case CS wasn’t able to resolve a problem, quick and free replacement of any problem part;

23 © 2005 UMFK. 1-23 Company Culture Part typical Silicon Valley startup: –Fast-paced, open, and informal environment; –“First day” example; Part Everdream-specific: –Belief Statement; –Mission Statement; –Statement of Values;

24 © 2005 UMFK. 1-24 Customer Service Everdream’s management believed that their “one-stop support” was unique, as was their emphasis on customer service personnel; Pacific Call Center Solutions, Inc. (PCCSI) was hired to help set up the company’s call centers; PCCSI also had a small equity investment;

25 © 2005 UMFK. 1-25 Customer Service Major factors to consider in developing a new call center: –Types of calls; –Volume or projected volume of inbound and outbound calls and emails; –Location of the center; 50% of the cost of a call center is people; Factors to consider: –Education levels (quality); –Tax rates (cost); –Type of infrastructure you need to build; Need of Computer-telephony integration (CTI); Need of Voice Response Unit (VRU);

26 © 2005 UMFK. 1-26 Customer Service Major tradeoff – cost of service vs QoS; Call centers are expensive: –A 100-seat call center – around $3M; –Software capital would run hundreds of thousands of dollars; The biggest chunk – services (customization); –Overall project management costs (15%); Ongoing costs: –Labor (50%); –Operating costs - telephone charges, software depreciation (40%); –The last 10% - depreciation and occupancy;

27 © 2005 UMFK. 1-27 The Mountain View Solutions Center With Silicon Valley’s high labor costs, expensive real estate, and tight labor market – one of the worst places to locate a call center from a cost perspective; Immediate feedback to any department; The company wasn’t yet receiving calls in volume, so it was difficult to project the average cost per call or even average number of calls a customer might make over the life of 30-month contract;

28 © 2005 UMFK. 1-28 Everdream Economics VARIABLE CONTRIBUTION PER PC OVER 30 MONTHS: –REVENUE = $4,500 ($150/MONTH X 30 MONTHS.); –COST OF PC HARDWARE AND SOFTWARE = $1,800 ($60/MO. FOR EQUIVALENT LEASE); –COST OF ACCESS/BACKUP SERVICE = $300 ($10/MONTH, BASED ON NETWORK PORTION OF DIALUP ISP’S COST BASE); –COST OF CUSTOMER SERVICE = $640 (DERIVED IN THE NEXT PAGE); –VARIABLE CONTRIBUTION = $1,760 (39% OF REVENUE);

29 © 2005 UMFK. 1-29 Everdream Economics PER PC COST OF CUSTOMER SERVICE CUSTOMER SERVICE REP EARNS $33,500/YR (SALARY); ASSUME 70% CAPACITY UTILIZATION, AND LABOR IS 50% OF CALL CENTER ONGOING COST; ($33,500/0.7) X 2 = $95,700; SIX WEEKS/YR. FOR VACATION/HOLIDAY/SICK DAYS/TRAINING (52-6=42); 46 WEEKS X 5 DAYS/WK. X 7.5 HRS./DAY = 1,725 HRS./YR. $95,700/1,725 = $55.50/HR. CALL CENTER COST CUSTOMER MAKES 7.5 CALLS IN FIRST 3 MONTHS, 1 CALL/MONTH THEREAFTER. TOTAL 34.5 CALLS. EACH CALL 20 MINUTES, SO 11.5 HOURS TOTAL REQUIRED X $55.50 = $640 CUSTOMER ACQUISITION COST = $250 + THE TOTAL: 1,760-640-250=$870

30 © 2005 UMFK. 1-30 Current Primary Stakeholders Venture Capitalists: –Draper Fisher Jurvetson; –Canaan Partners; –New World Ventures; –Hewlett-Packard Company; –Portage Venture Partners; –Baird Financial Corporation;

31 © 2005 UMFK. 1-31 GBF Network effect: –Modest; –Everdream delivered Internet-enabled applications; –The user base restricted to employees of a single company; Economies of scale: –Very significant; –There are a lot of upfront fixed costs in a business like this to deliver the quality of service that would differentiate Everdream; Customer retention rates –Very high CR rates considering switching costs;

32 © 2005 UMFK. 1-32 Success or Failure? I think success. Reasons: –Bright minds; –Good, real-world idea; –Simple business model; –Correct target market and sales channel; –GBF strategy;

33 © 2005 UMFK. 1-33 Latest update Everdream still exists. Overview from company’s website: –Founded in 1998, Everdream provides an integrated suite of web-hosted services to manage desktop and mobile computing devices for the medium-to-large enterprise; –Everdream’s proprietary technology platform integrates all manage enterprise computing functions, while providing a complete hosted IT service; –Everdream allows you to purchase software, hardware, and support for computing security and management as services;

34 © 2005 UMFK. 1-34 Current Customers FedEx (automotive and transportation); Korean Air (automotive and transportation); Sylvan Learning Centers (education); Equity One (financial services); Premier (health care);

35 © 2005 UMFK. 1-35 Questions???


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