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The categories abound. Examples include: • Internet call waiting (supposedly big in the dial explosion days) ...and too many more to mention. The automotive equivalent of the value-added service to hosting and access services may well be the auto performance enhancement shop, where your basic vehicle can be kicked up with aftermarket engine parts, rims and the like. For providers seeking to tune up their hosting services however, the question may well be, will value- added features "pimp your ride?" Or, merely spend your money and frustrate your users. The best answer as usual is a combination of know your customers and their needs, plan and execute well and sprinkle that with a generous dose of "caveat emptor." Value-added Internet services can be the IP-equivalent of snake oil to the unwary service provider and user. How Big is the Market? In general, many value-added services fail to earn customer adoption or "take rates" above the low single digit level. Even the most compelling of applications among which I include "dial up accelerators" (meaning the ones that really work!) struggle to earn 10 percent of conversion on a user base. Internet providers might see two such value added applications in five years. So, if you are a hosting service provider feeling threatened by competitors who seem to launch a new, clever value-added widget every three months... in real financial terms, you needn't be. The bottom lime is, the vast majority of these applications simply don't sell in compelling numbers. Factor in the low monthly fees many command, frequently approaching "free" and the revenue picture can be bleak. So what's the answer? - Bundle Them Trying to cross-sell a new customer into extra services isn't easy. The old "would you like fries with that?"... works up to a point. But in the hosting world, what are "fries?" Would your value offer be one of the following? • Would you like more disk space with that?
This approach sounds absurd but it's more common than you think. The domestic auto industry of the 1970s offered very little as a "standard feature" in a car. Your new Buick looked like an unmarked police cruiser until the dealer added numerous "options" to make it drivable. All that changed when the hassle of managing all the combinations and permutations of "options" became too costly for Japanese auto makers who had to manage the business from around the word. So along came the accessory packages as included features. If you wanted a better stereo or power windows over a Tercel, you'd upgrade to a Corolla and get it all "included." Web hosting services are not entirely different. Service providers have a hard time (like the Japanese auto makers of the '70s) managing the order process, provisioning and support for a myriad of separate add-on features. It's a lot easier to sell "Plan A" or "Plan B" and simply include progressive features in each upgrade. Certainly your billing system will appreciate that approach. It turns out, your customers may like it better also. Market research confirms that majority adopters, who are buying the most hosting services in large numbers today, want value and simplicity. A hosting plan that includes generous disk space, adequate email accounts and comes with spam filtration and virus scanning is expected as minimum desirable table stakes. Making these "features" billable extras, even if the base plan is stripped down and cheap, seems complicated to new users. Getting a car for $9,000 is no deal if the tires and AM radio are extra billable options. In fact, whether your customers want it or not, bundling may be what your competition forces you to do. Symantec's email anti virus service is available to ISPs at a low monthly cost per month per email box. It may seem a good idea to mark it up and resell it to your end users for a nominal profit. But look out if the big hosting guy down the street is a) getting a huge volume discount from Symantec and b) throwing into his hosting/email service as a "free" feature. You won't look too attractive to your prospects by comparison. Value-Added Services Reduce Churn and Drive Sales Bundling may not justify itself as an incremental revenue generator for the value-added service as a discrete service. No matter. If adding some new features free to your hosting plans makes users happy, that's an important win. VA services are proven in many cases to reduce churn by adding "switching barriers." The classic example is unified messaging such as "fax-to-email." Imagine being a user who adopts this service. All your inbound faxes come to a unique 7-digit number and convert to an email document. Try switching to an alternate hosting provider now. No more faxes unless you carefully select and switch over to a competing unified messaging service. I call this "binding your customer with velvet ropes." They are tied to you, but not unpleasantly. (Let's not explore that metaphor too much.)
VA services will drive your core hosting sales whether your customers use them or not. Sound fishy? Thank consumer electronics. Does every stereo purchaser actually need HDTV, 7-channel sound, Dolby I, II, DTS, Neo and 36 special effects modes? Consumer studies show that VHS machines with the clock set on blinking 12:00 is the norm for over half of all users. Yet the extra features have appeal that drives the initial purchase. People want to know they can use the extras if they want to, but not necessarily right now. (Or ever.) In essence, the extra VA features provide you with credibility, consumer appeal and differentiation. Features sound good. As long as they don't cost too much extra, why not buy them? Fundamentally, your hosting service requires numerous value added services simply to compete and appeal to the end user. Value-Added Services Don't Sell Themselves As mentioned earlier, the majority of VA services have a hard time exceeding low single digit take rates. However there are ways to improve on this. The sales and marketing tactics employed by many providers are weak. We call this your "go-to-market" activity. Are you a passive marketer or an active one? Simply adding a link to your hosting sign-up pages saying "click here to order SEO and optimize your site for $29.99 per month," won't move many buyers. Majority adopters require education, selling and sometimes evangelism to get on board. Yet for some services costing $5.00 per month, how can you afford to spend the time and effort to actively sell the feature? Numerous economical techniques drive enhanced take rates: - Run flash demos of the value added application on your site None of these tactics require expensive selling programs or people, yet they work. In a controlled test conducted by Hostopia in 2002 offering an email anti virus (paid) service for $5.00 per user per month, two hosting providers attained three percent and five percent take rate on their entire hosting users bases within 120 days while others languished below one percent for over a year. The difference? Email promotion of the service to the user base backed by a free 30-day trial offer. Any combination of the above go-to-market tactics will dramatically impact your take rates and overall business success with VA services. Easy Is the Word - Easy to learn about Any missing element in these "easies" will kill take rate and can generate the ultimate horror show for a service provider: negative word of mouth that erodes the core service. Finding out a customer dumped your hosting service along with 20 email accounts because they didn't like the way your free-bundled search engine submittal worked out is a bad hair day. And not uncommon. The best service providers today have put some well-structured effort into their website that for an ounce of prevention delivers kilos of cure in a successful roll out of a VA service. Kurant Storesense (www.kurant.com) is a fast-growing eCommerce application. Kurant markets largely via distribution partners such as Hostopia.com. The secret to successful value-added services selling is making the entire experience rewarding for end users before they are even a customer. Kurant's president, W. Curtis Pierce elaborates, "We've learned by five years experience that even the best services don't sell themselves. Our most successful distributors rely heavily on a wealth of marketing support that we make available to them. Product collateral material, online tutorials, Web-ready fact sheets and FAQs, feature matrices and live demo applications are all essential to successfully offering our service, or any other in our opinion." Hostopia research and experience with over 280 hosting service providers validates Curtis' view. A study conducted on customer registration sites where your website visitors can order your value-added services can do much to help or kill a product's success. This author found that non-intuitive forms, difficult navigation and ambiguous eCommerce terms for the service in question will drive "site abandonment" exceeding 20 percent. Interested prospects looking at your add-on services will simply abort if they don't feel assisted throughout the online buying experience. The best value added service vendors will assist their ISP customers in all these areas.
Bottom Line: What's Hot and What's Not There are a lot of moving parts to the formula for getting a value-added services program working profitably for a service provider. Still the most significant part of your go-to-market strategy is picking the right services to launch. The buffet table is piled high with value-added widgets for hosting providers these days, but as we say in sophisticated marketing terms, "sometimes the dogs don't like the dog food." Here are my picks, right or wrong for the hot value added services of the next two years.  The three golden criteria for success for any service provider when considering value added services are: 1. Product: Choose your services well and pick the right vendor. With a well-executed strategy for value-added services, you can generate impressive growth in your core services, differentiate from your competitors and make your customers very, very happy. |
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The automotive equivalent of the value-added service to hosting and access services may well be the auto performance enhancement shop, where your basic vehicle can be kicked up with aftermarket engine parts, rims and the like.
