What’s better than free, right? Who can resist an essential service that’s offered for free? Business Reporter’s resident U.S. ‘blogger Keil Hubert suggests that it’s bloody foolish to gamble your business’s continued existence on the whims of any third-party service provider.
How would you react if I offered your company the deal of a lifetime? Imagine, say, that I offered to provide one of the core IT services that your business depends on – for free. Say that I promised to save you £100,000 or £1,000,000 or some other amount without diminishing one iota of your operational capability or decreasing service. There’s no catch; just sign up and redirect all of that sweet, sweet operations money that you’ve been using to support the crucial service over to an underfunded project. You know my company! You know that we have the best of intentions! You already trust us. We’ve never let you down! You can’t lose! What could possibly go wrong?
The answer to that last rhetorical question as old as dirt: anything that’s offered for an unbeatable price today can – and inevitably will – wind up costing you more in the future. A successful business doesn’t ever give something away at below market rates unless doing so allows the seller to secure itself a strategic advantage now and has a way to recoup its costs down the road.
Case in point: back on 15th July 2016, Iain Thomson of tech sector news site TheRegister posted an article titled ‘Empty your free 30GB OneDrive space today – before Microsoft deletes your files for you.’ Iain wrote that Microsoft was (at the time) cutting its OneDrive cloud storage service from 15 gigabytes of free storage per user down to 5. Users that didn’t prune their storage on their own were expected to see whatever data they had stored over the new limits get deleted on their behalf. That was likely to be a bit of a problem for anyone who either hadn’t been paying attention or wasn’t in a position to get right with Redmond before the deadline hit. [1]
‘Oh! Where those your crucial Business Recovery plans?’
Before you assume that I’m bashing the boffins at Microsoft over this year-old decision, let’s be clear: I understand exactly what Microsoft was doing and it doesn’t bother me. I didn’t object back when they did it, and I don’t object to it now. They had good reasons for the restructuring. I’m bringing up this water-under-the-bridge event in order to frame my argument that it’s imprudent to trust any critical production capability to any external provider when an interruption to that capability might doom your business. Please note the three keywords there: ‘critical’ (not incidental), ‘production’ (not experimental), and ‘business’ (not ‘personal affairs’).
It’s the dependency part that bothers me. That’s why I’m deeply leery of promotions that seem so amazingly lucrative that you’d be a darned fool to not take advantage of them. Free site hosting? Free storage? Free cloud analytics with free ice cream on payday? No matter what the offered benefit is, it shouldn’t come as a surprise that these ‘amazing’ deals always come with a catch. That’s because the free (or heavily-discounted benefit) is never actually free; someone always has to pay for it. The cost of making, delivering, and supporting the service has to recouped. If it isn’t, then the fool providing the unbeatable deal is going to haemorrhage money and may go out of business. The lucky customer just sees that they’re not the one paying for it. At least, not right now …
To be sure, there’s also nothing at all wrong with a service provider changing the terms of the service so that the customer winds up unable to avoid paying them – either at fair market rate or well above that – once the customer can’t afford to walk away from the relationship. If the service provider puts it in their contract that they reserve the right to change their terms of service at any time, then a customer is taking a calculated risk when commit to using the third-party service. It’s like an adjustable rate mortgage: it’s cheap up front, but is highly likely to become terribly expensive later on. Caveat emptor.
Let me add one more disclaimer on this: I’m not anti-‘cloud’ or anti-‘outsourcing.’ I was pioneering hybrid cloud solutions business continuity for the U.S. military back in 2005. After I retired from the service, I did program management and pre-sales support for a global cloud services and managed hosting provider. I understand and can articulate the value propositions for letting someone else manage some or all of your hosting requirements. There are definite advantages to be gained and cost savings to be celebrated when you shove the hosting burden off on someone else. That’s why I hired a hosting company to run my consulting practice’s servers for me years ago – so I don’t have to be bothered with all the patching, monitoring, and what-not. It’s not worth my time. The thing is, my company website isn’t crucial to my business; whereas my Amazon.com author’s site definitely is.
What’s the alternative? Cruising slowly around the financial district in a repurposed ‘Ice Cream & Business Advice Books’ van?
All that said, it should be clear that the one and only thing that I’m taking umbrage with in this practice is the dependency factor. A great deal is only great until isn’t. That’s fine … so long as the buyer retains the ability to walk away from a deal once its terms go bad. That’s where many businesses make a crucial, unrecoverable mistake, and that’s why I’m arguing that a business should be deeply wary of fully-committing to any offer on a crucial IT service priced at below market rates. Second, I submit that a business should never entrust the entirety of a crucial process to an external provider without reserving the ability to bring that process entirely back in-house at a moment’s notice.
This isn’t just opinion; this is a philosophical position regarding strategic risk management. For me, it’s a position that’s shaped by traumatic experiences. I appreciate that not everyone will agree. That’s okay. I don’t want to convert you to my dryly paranoid style of running IT ops nearly as much as I want you to consider these ideas before you commit to any sort of a total outsourcing contract that has the potential to hold your business hostage.
Let me say it again: I’m not against the practice of a company giving away a service at a competitive price in order to generate goodwill and attract customers. Some companies choose to subsidize (and even take a loss on) their products or services in order to secure long-term advantage. Google does that with a lot of their new initiative in order to refine them in the crucible of user discontent. Later on, once the new Google Thingysm is polished enough to be a contender in its segment, Google can then choose to start charging for it, sell it off to someone else, or randomly kill it. Large companies can afford to underwrite their projects as part of their long-term go-to-market strategy.
The downside to this approach is that a company that gives away the early versions of its services for free has little incentive to keep supporting those services should they fail in the marketplace. Google is pretty famous for killing off their initiatives that either don’t live up to their expectations or just no longer amuse them. If a business depends on a service that’s still in its public experiment mode, they need to be aware that the service can be jerked out from under them at any time and there’s nothing that they can do to change the owner’s mind. Are you willing to bet the future of your company that a third-party that you have no leverage over won’t arbitrarily change its mood?
‘On second thought, I’m no longer giving away free ice creams. Now, you can get one frozen treat for every copy of “In Bob We Trust” that you purchase at full retail price.’
Other outfits will give away their services for free for a short time in order to grow their user base. It makes sense; companies are more likely to pay for a service that they already have in production and that they depend on than they are a service that they’ve never tried. Free and cheap initial giveaways are a great way to build a brand in a company’s early days: burn some investment money early to gain momentum and then monetize the widget once it’s successful (enough) in the market. In a way, I did exactly that here on Business Reporter, offering these weekly online columns to the world for free in order to build a reader base so that there would be a ready market for my books.
The downside to this approach is that a company that gives away (or steeply discounts) its services always has the option of suddenly charging its customers for them. Several newspapers changed their business model back in the 1990s and 2000s, putting their content behind ‘paywalls’ where only subscribers could access it. Readers who had gotten accustomed to reading content for free online content suddenly had their access cut off … unless they agreed to pay. This (ironically) accelerated the decline of many newspapers by infuriating their loyal readers. Once again: are you willing to bet the future of your company on the continued availability of a service that you don’t control?
I’ve been using Western movies pretty much all through 2016. The movie that caught my attention for this article was 1990’s three hour long Kevin Costner ego vehicle Dances With Wolves. Full disclosure, I hated this movie when it first came out. [2] I thought that it was pretentious, condescending, and a bit racist to boot. That said, the story actually fits this ‘free services’ topic, so I’m going to run with it as a working analogy.
If you haven’t seen it (and I don’t recommend that you do), Wolves is a fantasy about a brave, handsome, and noble American Civil War veteran who goes to the wild frontier in order to find himself. Upon encountering some hostile Native Americans, he elects to pre-empt their expected violence by making friends with them. The protagonist abandons his unit and his post, learns the natives’ language, gets accepted as a member of their tribe, marries one of their girls, and dances with a passing wolf because audiences love adorable animals. At the end of the story, the protagonist realizes that the Army might stumble across his diaries that he left behind at his last duty station and use his notes to track down and kill his new family. He tries to go back to recover his notes … only to have his beloved horse and wolf killed by the Evil White SoldiersTM because the protagonist has so embraced his new tribe that he’s somehow become indistinguishable from them. Also, because one-dimensional villains don’t need complicated motivations. As you’d expect, mayhem ensues.
Next, we need a meaningless bad guy to threaten our female lead.’ ‘How about a random disaffected young person wearing a hoodie?’ “Brilliant! Everyone knows that every single human on Earth below the age of forty who happens to be wearing a hoody is a drug-abusing, ant-social, violence-prone miscreant.
Setting aside all of my (many) complaints about the characters and the plot in this movie, Wolves actually serves as a good cautionary tale for the idea of making yourself dependent on a too-good-to-be-true third-party provider. In the movie, the protagonist decides to go all-in with his new culture. While romantic and admirable in the abstract, it isn’t exactly practical. Costner’s character makes no attempt to stay on good terms with the culture that he leaves behind. [3] He deserts his outpost, discards his uniforms, changes his name … Then, later, when he has to return to his old existence, he finds that he can’t because he’d effectively burned all his bridges.
From an author’s perspective, the protagonist’s actions were rash, ill-conceived, and even a bit barmy. As a career soldier, Costner’s character would have known that the punishment for desertion – not to mention giving aid and comfort to the enemy – was considered unforgivable by military law and was punishable by death. His all-or-nothing gamble may have been morally admirable, but the way that he went about it wasn’t reversible. Once the protagonist walked away from his post, going back was no longer an option. What if his new family didn’t accept him? Or he discovered an irreconcilable conflict with their lifestyle? Or realized that he’d left something back at the fort?
Could Costner’s character have pre-emptively mitigated that risk? Yes, he bloody well could have! All he needed to do in order to hedge his bets was convince his Army superiors that he had a compelling reason to ‘go undercover’ with the local Sioux tribe so that they would endorse his separation and turn a blind eye to his ‘undercover’ persona. Then, every month or so, our protagonist could have linked up with his old comrades to reinforce their perception that he was still ‘one of theirs.’ Yes, this plan may have imposed an annoying logistical burden on him, but it would have allowed him to leave his options open in case the whole leave-the-Army-and-join-the-Sioux plan went pear-shaped.
Looking at the story as an allegory for a business, the same general rules apply: a pragmatic company never ‘pulls a Costner’ if they can possibly help it. They make darned sure that they always leave their options open as a risk management control against being caught unawares by an external partner. An essential element of protecting a business’s future is preserving it self-sufficiency, especially in those functions that are necessary for its continued existence. That’s why savvy IT leads always hedge their bets; they doggedly retain the ability to deliver their company’s critical services in-house just in case a third-party service provider either fails to deliver or tries to change the terms of their relationship.
Handing over your mission-critical systems to a third party is a bit like jumping out of a plane without your own parachute. Yes, you have a contract with your critical service provider to look out for your interests, but if the service provider decides to cut you loose, well … odds are, there won’t be enough of you left afterwards to sue for damages.
Does that mean that a company shouldn’t accept competitively cheap offers on essential functions? No, not at all; there’s nothing wrong with taking advantage of good opportunities as they arise. There’s also nothing wrong with leveraging strategic relationships that decrease costs, increase efficiency, and/or reduce workload. In exploiting one’s options, though, a responsible company always needs to maintain a critical minimum reserve capacity. That is, the business must be prepared at all times to endure the loss of a critical service provider long enough to find an alternate provider. That means never going ‘all-in’ when it comes to outsourcing essential business processes.
Outsource the ancillary stuff? Sure. Fine. No problem. But the crucial stuff? The ‘our company will die if we can’t provide this to our suppliers, partners, or customers’ stuff? Never chance it! Put another way, don’t leave your company’s future in someone else’s hands if you can help it.
Along those lines, Costner’s epic Western would have been at least an hour shorter if he’d just invested five minutes of screen time in maintaining a good working relationship with his former Army buddies. He’d probably also still have had his new family, his beloved horse, and the titular dancing wolf at the end of the movie. Sure, there would have been a lot less pathos and drama, but that reduction in drama might have made the film less preachy and annoying.
[1] I actually wrote about half a column about the OneDrive issue when it first manifested, then stuffed my draft and my notes in a briefcase. Obviously, I just found those notes. Sheesh …
[2] Which caused me no end of grief back when I was dating the lady that I later married. She loved DwW, so our arguments about its merits as a film weren’t doing me any favours.
[3] That overwhelming force that was enthusiastically obliterating all of its competition (in the form of all those pesky natives who weren’t amenable to ‘self-deportation’).
Title Allusion: Kevin Costner, Dances with Wolves (1990 Film)
Recommended Potential Tags: risk management, planning, dependency, contingency, marketing, drama, Keil Hubert.
Photographs under licence from thinkstockphotos.co.uk, copyright: wolves, Cloudtail_the_Snow_Leopard; oil barrel, Thinkstock; mr whippy, Dorling Kindersley; kids, Christopher Robbins; hoodie, ivan101; skydiver, German-skydiver
POC is Keil Hubert, keil.hubert@gmail.com.
Follow him on Twitter at @keilhubert.
You can buy his books on IT leadership, IT interviewing, horrible bosses and understanding workplace culture at the Amazon Kindle Store.
Keil Hubert is a retired U.S. Air Force ‘Cyberspace Operations’ officer, with over ten years of military command experience. He currently consults on business, security and technology issues in Texas. He’s built dot-com start-ups for KPMG Consulting, created an in-house consulting practice for Yahoo!, and helped to launch four small businesses (including his own).
Keil’s experience creating and leading IT teams in the defense, healthcare, media, government and non-profit sectors has afforded him an eclectic perspective on the integration of business needs, technical services and creative employee development… This serves him well as Business Technology’s resident U.S. blogger.
