Hosting outfit goes PERMANENTLY TITSUP after 'lifetime' plans kill biz A US-based web hosting firm has gone bust after it discovered too late that its "lifetime" plans for customers pretty much cost the company its (ahem) life. NodeKi told subscribers in an email message (h/t to Reg reader Darren) that it would be going titsup for good as of 1 February. "We want to inform you in advance that the …
Nothing wrong with lifetime plans - you just have to charge enough up front and then hold adequate reserves to cover future costs. You mean they didn't? Then it becomes a Ponzi scheme and very close to fraud.
Of course if it does look to good to be true then it probably isn't true.
My thoughts while reading the article were that this sounded like a scam, or at least a very poorly thought out business plan if they actually intended it to be sustainable. I'm sure the company's founders made a lot of money off of it before things imploded, leading me to think their goal was simply to bring in quick money with an unsustainable business model while tricking their customers into thinking they'd have a service that would last them for years. At the very least, they could have given their users more than two weeks notice that their "lifetime" plans would be ending. Even most free services give their users months of advance notice when shutting down. The company had to know for quite a while that their income was unsustainable.
Even so, anyone thinking of purchasing these plans should have been suspicious. One should be wary of a startup company offering "lifetime" access to their product. Really, the only time a "lifetime" model would really work for a business is if it's for something that lacks significant reoccurring costs, or where they'll be able to easily upsell the user to another service in the near future.
Did they "expire" before or after the senior management and shareholders all extracted copious amounts from the company? After all, it sounds like a great scam - start a "lifetime" service, get loads of punters/marks to sign up, pay select staff and shareholders a fat wedge, then wind up the company. Since they haven't declared themselves bankrupt I doubt there will be any legal investigation of where the money went, especially if they covered themselves with the "sustainable" clause and no refunds.
I foresee a long, successful, prosperous career in government service for Mr Tittle; most likely in the MoD or Ministry Of Fun. I'm sure that he would be willing to relocate to the UK if you make it worth his while. And you need to make it worth his while as these are the kind of innovative and ambitious entrepreneurs that the UK has been searching for and hiring to modernize its government and economy.
@Matt Bryant
They never had senior management or shareholders, it was just a small operation with under 150 clients (most lifetime) and less than $1k/month in actual recurring income. They only had a total of 3 hosting servers, one of which (the biggest) was used just for the lifetime clients. It never got off the ground enough and was never something that was intended to be a scam. There just wasn't enough recurring income/profit to pay for the expenses.
Source: I provided some consulting for the company.
"They never had senior management or shareholders, it was just a small operation with under 150 clients (most lifetime) and less than $1k/month in actual recurring income. They only had a total of 3 hosting servers, one of which (the biggest) was used just for the lifetime clients. It never got off the ground enough and was never something that was intended to be a scam. There just wasn't enough recurring income/profit to pay for the expenses."
Ever wondered why people hire accountants?
A competent accountant could have told them it was not going to work (or at least not on the scale of their operation or the fact most of the customers had that deal) before it got that far and they might still be in business.
Lifetime support + recurring costs (which may rise) --> perpetual motion machine.
you mean like say Yahoo Email, or Gmail, or Hotmail, etc.... these sorts of service only ever work if you have a really large operation and the lifetime or free service is actually a loss leader to sell other products.
Making your central business model a cheap lifetime service isn't sustainable - but maybe the model was something like : get lots of clients onto the platform and make the money from business consultancy and add on recurring services.
Not saying that is the case - just making the point that there are business models which can and do offer long lived free services, but not at a small scale.
Yahoo Email, Gmail and Hotmail/Outlook are examples of making the product think they are customers. Sign up for a Yahoo mail account, use the web interface to read your mail and you get an eye full of ads. You also get a package of cookies so Yahoo can track your web browsing habits. Now they are armed with whom you exchange mail with, what your interests are and the information that you have so kindly handed over to them and their affiliates. Compile, stir and strain, and they might as well have your fingerprints on file too. You are correct that it's something like a loss leader, but it's more like feeding the animals at the zoo so patrons will buy tickets (and over priced stuff).
I've seen trade organizations offer lifetime memberships, but their costs per member are usually minimal. Being able to amass a large number of members also makes it easier to attract additional members and therefore increases the ad space value in the trade magazine they send to members.
I have a hard time believing that this company's business model would make sense at any level of uptake. Intuitively, it seems unsupportable unless you assume a certain level of infinite growth. Even then, the sums might not come out in the black.
"Ever wondered why people hire accountants?"
Frequently. There are many reasons, the usual question is which one is any given organisation using.
"A competent accountant could have told them it was not going to work"
As could any numerate person with a clue (scientists, engineers, etc). Maybe not an economist or marketeer though.
You're forgetting the model for Internet businesses: get started, get lots of venture capital, give away the service and hope to grow big fast, and achieve one of the following: get brought-out, stock market float, or develop a profitable revenue stream before the money runs out. A good accountant will only be able to tell you the size of the financial black hole you're on the verge of falling into and how much rope you currently have ...
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"It's not remotely possible...
"...to provide any product "for life" that has recurring costs associated with it."
Of course it is. The lack of recurring revenue doesn't by itself make the model unsustainable. Somebody's already mentioned the annuity business which relies on accurately forecasting how long "for life" means on average. The other method simply depends on the average churn rate as people naturally move on to something else.
For example, I have a lifetime membership with sdf.lonestar.org for remote access - I use it as my primary news and email account, a stepping stone in various remote access cases (behind firewalls etc), and as a dumping ground for various small bits and pieces I need to access from anywhere. It cost something like £15 twenty years ago. I've had far more value than that since.
It's a non-profit with public accounts, though, and you can see that it is not in financial difficulty of any kind, even though the lifetime accounts make up the largest share of revenue. The majority of users play with it for six months or so and then move on to something else. Since it's a "lifetime" membership people don't feel the need to use it to get their money's worth and many simply never return after a while. Overall, the model is perfectly sustainable, even if some people like me are effectively subsidised by the short-term users.
If the initial fee was high enough, you could invest it and hopefully the annual interest would be just over the annual running costs (allowing you a small profit). Assuming hosting costs remained static then you'd need a pretty high initial fee.
(using my crap maths skills; if you could get 1% interest then you'd have to charge the customer the equivalent of one hundred years worth of hosting costs up front)
Of course, it would make more sense for the customer to invest the money themselves in the first place and just pay a re-occurring hosting charge from the interest. That way they could move their business should they need to.
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