Giving away the company's secret sauce

Giving away the company's secret sauce

One of the stories I learned when working in the dedicated/managed web hosting biz way back when was about how the entire market segment got going. I wasn't working there when this allegedly happened, but it still made for an interesting little tale. I'm not even sure if it happened, but would love to see the evidence if anyone has a copy still.

So it was the "dotcom" days -- late '90s, right before the crash. You could get funding for your silly little company just by claiming how many "hits" your site got. Those companies with the sock puppets and super bowl ads did okay at first, but you know who really cleaned up? That's right, the companies who supplied them the hosting. That's where it intersects with my story.

Back then, hosting servers was still a big scary deal for most people. Hardly anyone had any idea what it took to run the physical space, and leasing/renting it meant getting huge rackmounted machines, cabinet space, pulling in power, wiring up PDUs, and all of this stuff. It was really expensive.

Then there was this little company. They were selling dedicated Linux servers for $99 per month, and promised to put them online within an hour of you ordering them, 24 hours a day. Also, they had "the best support in the industry", according to them.

It seems like nobody else could crack this particular nut. They couldn't figure out how they were managing to stay in business. How could they possibly be making money selling all of this stuff for just $99/month? How could they possibly hang a new server in a rack in under an hour, and then install the OS on it, and all of this?

As the story goes, this was the "moat" protecting their business. Nobody else could get into the space since they couldn't make the math work. This one company kept going and kept raking in the customers.

Then, one day, it changed. Another company figured it out, and suddenly there was competition at the "bottom" -- the bare-bones super cheap dedicated server market. What happened?

Well, according to my friends, what happened was either a single full-page color photo ad in an industry magazine, or perhaps a large photo accompanying an article. Basically, someone from the company is shown standing there in front of the actual servers, looking proud. I guess they wanted to show off the fact they used certain chips, or something like that. The picture itself contains enough details to show that there is no magic involved.

What did it show? It seems like it gave away the entire "secret":

Bread racks packed in about as dense as you can go. Switches lashed to those bread racks with washers and screws. TONS of minitower whiteboxes packed onto each level of the racks. No firewalls, no "real" 19" racks, no fancy rackmountable servers, no raised floors, no fancy power distribution units, and about the crappiest and cheapest hardware you could find: cases, motherboards, power supplies, you name it. Oh, and instead of Intel chips, they used AMD. Instead of 7200 RPM drives, they used 5400 or maybe even 3600. Instead of SCSI, it was IDE. Instead of Solaris, it was Linux.

Apparently, once this made the rounds, other people realized that customers were willing to pay for something so rough and dirty, and so why not create such a service themselves? How hard could it be to bulk-buy a bunch of PC equipment, start putting it together, and cram it into awful rooms with terrible ventilation?

What followed was an explosion of competitors.

I may never know if this picture and/or article ever happened, but it does raise an interesting point. If the only thing keeping you the only player in a certain market is ignorance of how you built your environment, just how long do you think that will last?

It's also entirely possible this story was a fabrication created to explain why a certain someone (the person in the picture, no doubt) was "thrown under a bus" by the company at some point. By saying it happened "a long time ago" and by conveniently not having a copy of the picture around, they can get away with a lot of stuff.

It's worth keeping stuff like this in mind when sharing stories. Tell the story, sure, but point out the flaws in it, too.