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internet
business models
text and cases
Everdream
Donatas Sumyla
© 2005 UMFK.
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Content
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Overview of the company;
Goals & strategies;
Sales and marketing;
The Everdream product;
Customer Service;
Economics;
Primary stakeholders;
GBF analysis;
Success or Failure?
© 2005 UMFK.
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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 ;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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Overview of the Company
• Everdream’s package included:
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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 businessoriented goods and services through BizCenter on
its Internet portal;
© 2005 UMFK.
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Management Team
• Gary Griffiths – CEO;
• Andy Efron – Director of Customer Service
(Stanford Business School);
• Brian Golson – CFO (HBS ’97);
• Russel Rive – CTO, co-founder;
© 2005 UMFK.
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Goals & Strategies
• Everdream’s mission was:
– To “simplify the computing experience for
small business”.
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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The Everdream Product
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Hardware;
Software;
The Dream Side/Flip Side;
Customer Support;
Company Culture;
© 2005 UMFK.
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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 eservices (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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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);
© 2005 UMFK.
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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;
© 2005 UMFK.
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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;
© 2005 UMFK.
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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);
© 2005 UMFK.
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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
© 2005 UMFK.
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Current Primary Stakeholders
• Venture Capitalists:
– Draper Fisher Jurvetson;
– Canaan Partners;
– New World Ventures;
– Hewlett-Packard Company;
– Portage Venture Partners;
– Baird Financial Corporation;
© 2005 UMFK.
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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;
© 2005 UMFK.
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Success or Failure?
• I think success.
• Reasons:
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Bright minds;
Good, real-world idea;
Simple business model;
Correct target market and sales channel;
GBF strategy;
© 2005 UMFK.
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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;
© 2005 UMFK.
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Current Customers
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FedEx (automotive and transportation);
Korean Air (automotive and transportation);
Sylvan Learning Centers (education);
Equity One (financial services);
Premier (health care);
© 2005 UMFK.
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Questions???
© 2005 UMFK.