The biggest problem was they were introducing new servers with similar or better specs than servers existing customers had. And instead of dropping existing customers prices, they kept them static. So a lot of people found themselves looking at a bill 600% higher for the same server just because they were an existing customer. Who in their right mind would pay 6x times more for the same service ?
They could stop the customer churn by simply changing the price to match the new offerings.
At the time I switched to a new server type I even asked their customer team if the new pricing would be offered to existing customers and the answer was a flat no.
How about simply reduce the rental cost of the older servers to below that of the newer servers? I don't see this mentioned anywhere, isn't it pretty obvious?
No it's not pretty obvious. Reducing the rental cost of sold servers means directly reducing revenue, that sounds like madness to me.
The saner alternative would be to _increase_ the cost of the newer servers, but as they point out that could result in them being less competitive.
The real solution would be to devise some way where happy customers just retain their current servers, and new customers can get the latest hardware for the lowest price.
For some reason the old customers do enjoy upgrading their machines though, so this lands them in a tough spot. They can't have the best of both worlds, both the lowest prices and the freedom contracts. So they're going to take their time finding out what their strategy on this is going to be.
Ideally, the old servers would have (1) paid for themselves, and (2) generated a reasonable amount of profit, before they became so obsolete that the market demands drastically reduced prices. A high revenue stream from that server after that point should never have been part of OVH's business model in the first place.
A host that expects customers to keep paying the same monthly amount for a 2-year-old server is no different from a rotisserie that expects customers to pay the same price for last week's leftover chicken. If the rotisserie's business model depends on selling stale poultry at a higher price than what the market would bear, it is clearly unsustainable and deserves to have its revenue reduced.
I guess the price is already quite low and at some point the cost of the power, space, etc would be higher than the rental price. Do you want a new new server or a server that is 2+ years old and it's reaching its end of life?
I met people using OVH 4 years ago and they told me support wasn't great (I can't confirm this at all!) and that it was usually faster to order a new server and migrate than to wait until a faulty disk was replaced.
If people get good doing that kind of thing, it makes sense it's a problem for OVH (+150k servers): instead of waiting until a server is over 3 years old to be retired, just order a new one every year and benefit of the newest hardware. It's the same price, isn't it?
>I met people using OVH 4 years ago and they told me support wasn't great (I can't confirm this at all!) and that it was usually faster to order a new server and migrate than to wait until a faulty disk was replaced.
This is still pretty much true, especially under their best effort support. I have their higher SLA (<2hour) on several large servers and it still takes them a day or more to get back to me and then a day or more to get the hardware replaced. And now they've introduced a new iteration of servers (which, IMO, was designed to fuck the customers over...they've figured out how to oversell the rack at scale) that was ~20% the cost of the 2012 models of the same servers.
The issue is that they need a certain amount of revenue per box.
So, they buy a new Core i3 box with 8GB of RAM and they want to get $40 over the next two years to cover the investment. If they have to reduce its price to $30 after 6 months and further as time goes on, they don't cover the investment.
Now, they could price the box at $60 and lower it over time, but then you lose signups since it's a higher price (even if the average price over two years would be the same). You can say: well, have the older servers whose price has already been reduced available for sale as well. That complicates the lineup and is hard to manage. Unlike the new servers, the old servers only become available when someone gives one up which makes the supply unpredictable. With a new server, they can always buy one. Making matters worse, if the old ones have a reduced price, people are more likely to stay with them.
A decent part of this is that a lot of people are probably "needlessly" upgrading. By that, I mean that a lot of people probably aren't upgrading because the new server will make their usage better, but because they have a sense that they should be getting the top that their dollar will get. They were running perfectly fine on the old box, but why not try the new?
Ultimately, this is why VPSs are a lot easier. You can lower prices as time goes on in a reasonable manner. Someone wants the 1.7GB/1GHz 2007 box? That's a fraction of a new piece of hardware we can deploy. On the contrary, if someone wants a two year old model at OVH, they can't deploy a new two year old model: it's only available if someone gives it up. So, it becomes hard to capture the cheap-end of the market unless those signups keep paying for that box.
> Now, they could price the box at $60 and lower it over time, but then you lose signups since it's a higher price
That feels like the crux.
A friend claims Warren Buffett said something along the lines of "it doesn't matter how many insurance policies you sell, if you sell them at the wrong price".
If your customers are losing you money by paying at your published prices, then acquiring more customers isn't a sensible thing to do. Lock the customers in, or price higher at the start. Why chase customers who aren't making you money?
Yes that was my thought, have a price function that falls over time you have held the server, perhaps starting a little higher than the current one. Its a kind of amortised up front fee in some ways.
Alternatively, start a PAAS business to use the servers people dont want to buy, although I guess the VPS business does this to some extent.
This is not what they want because they are trying to price their new hardware competitively by milking their older customers. If they would reduce the profit of their cash cows they can not invest in reducing the prices of the hardware that attracts new customers.
Another would be to tie the customers to their current servers through other means which is what they're trying.
For example, one of the things they're trying now is to link the number of IP addresses you can have attached to the cheaper servers with how long you have been running it. Which is pretty clever if you think about it. Who are the savvy customers switching to the new offer the day it comes out? Hosters who need mutliple IPs for their users.
Their profit margins are likely not huge as it is, and it costs them just as much (probably more, given changes in power usage in servers over the last few years) to run a Core 2-arch server as an Ivy Bridge one.
I cancelled all my OVH servers, on the high end they are a ripoff and their internal network went to crap recently, it was faster to move files to another country than between 2 HG XXXL servers, go figure
I used to not like them years ago when I had a lot of servers, moved away, went back and we are very happy now. We are not experiencing the downtime / slowness you are referencing. And the competition quite expensive compared. I mean; I don't have to get the cheapest stuff possible, but Softlayer etc is really not economical for our business even if OVH would have some downtime.
"bringing in new customers and new projects which will allow us to increase our business figures"
Guys, you need to realize this isn't about getting the balance sheet in the black. There is no legitimate or interesting problem to solve here. They've been deep in the red. Their ultimate goal is to increase revenue figures at all cost and perhaps look "good" for an OK exit. Maybe there isn't more users or market share to grab in their niche. Hence the "thrashing." Their target server count is a million. They've been building DCs left and right with this figure in mind without there being solid sustained demand. I think they've spread themselves too thin.
OVH is working hard to acquire as many users as it can for the sole purpose of pleasing investors. And when that becomes any business' only focus...
I too, like many of you find their policies a little strange. Where the entire business world practices reducing prices of older products and replacing them with superior products at old or even slightly higher price points one must wonder the reasoning behind their, "newer must be cheaper than older" strategy where they do not pass on the benefit of the older hardware to the customers.
If an existing customer reads that page, and this thread there's just one thing that they will immediately deduce. Existing customers are being used as a subsidizing agent to capture new audience. Which, again is quite strange. In a game theoretic way, this drives the point to existing customers that it is beneficial to not be loyal to the service (i.e. cancel/re-order).
If they reduced cost on older hardware while introducing newer one, they could also list those up for sale. Surely people on a budget or people who don't need a Xeon will simply settle for an older Atom at a cheaper price. This also allows OVH to retain and milk the box till its ROI is hopefully achieved.
I'm an OVH customer, and I find this unbelievably bad practice. This rant is a piece of polemic that only serves to legitimise their screw up. Not selling cheap dedi's makes them entirely redundant.
What rant? Unless you're seeing something different to me, it's a Q&A form text that calmly explains the problem they have encountered with their current business model, and how they are going about trying to figure out a model that will work for the long term.
You are right, if the situation remains, it does make them redundant. On the other hand, if the turnover is too high to allow them to recover the cost of the new servers, they'll go bankrupt, so it is a problem they need to deal with one way or the other. The approach they've chosen is unusual, that is all.
What annoys me I suppose is that the issue was entirely predictable. I now know there are customers who got in before the shutdown who now have a server with double my spec at half the price. Of course current customers were going to move if they could! Why this surprised anyone is beyond me. The shutdown locks loyal customers in to a worse deal, and this rant/article/whatever doesn't even come close to apologising for/mitigating that - it is exclusively concerned with the ramifications for OVH. I'm the customer, OVH is the variable that bends to my will, not the other way around.
I'm eyeing up online.net now anyway, as I didn't know of them before. Now I do, and I have an insight into how the OVH mind works, I'm unlikely to ever use them again.
The text is almost verbatim from a post Oles made a month or so ago. It read someone what like rant, but mostly because Oles apparently can't write in French or English with proper grammar
Still, hardly my problem to figure that out and make allowances for it. It's his job to have it copyedited/run past someone in the company who is capable of empathy with customers.
I don't know, if you've been dealing with OVH for any length of time you should realize this is par for the course. OVH (in particular Oles) have always been brusque and unsympathetic to their customers whenever they've changed policies (usually with no consultation of their customers). OVH couldn't give two shits about your problems
Also an OVH customer and whilst I think the "shutdown" is annoying because I do want to buy another server from them (concurrently, not as a replacement), I don't agree that this is a rant at all nevermind a polemic, seems quite reasonable.
Perhaps 'rhetoric' is a better word. I'm a predictably pissed off customer, the last thing I need from OVH is a lesson in business strategy. All I want from them is a fair plan for what they plan to do for me now they've gone and got my back up. I don't think that's unreasonable given that I'm one of many who has chosen to keep them in business, and the hand that giveth is the hand that taketh away.
It appears to me they have underpriced their servers to the point they can't offset the ratio of existing customers upgrading servers. Seems like they should implement longer term contracts if they want to keep offering these rock bottom prices people keep snatching up. I'll admit looking at their pricing I can see why they sell so many.
You get what you pay for. Nothing wrong with a 5400 RPM drive with those specs for hosting a personal website, backup, VPN etc.
I've had 100% uptime over the last 3 months (externally monitored), used terabytes of bandwidth, and get 20ms ping over the Channel. You can't beat that on price.
OVH's network is one of the most overly sold of any large multinational host (At one point they had ~40Gbps fiber between their DCs but, of HG servers alone, had sold over 2Tbps of bandwidth). Their volume network has horrible contention and they don't even try to make it worthwhile -- 'best effort bandwidth' is basically what residential bandwidth is.
At one point I had ~5K of servers with them and in any given week one of them would require some work. My org had paid for the best SLA (<2 hour) and we'd often have to wait a day to hear back what the problem is and another day, at least, to get things replaced.
OVH's general business plan is to expand customer base quickly, then take the time to actually build out the network to fit their pre-growth size.
Hetzner is a little better on supportbut they have some annoying policies (See the DDoS thread from yesterday), I do like their automation though. I'm now mostly in Leaseweb and a couple CN-datacenters with my own peering mix
Well, I should have realized OVH's prices were too good to be true :)
>> My org had paid for the best SLA (<2 hour) and we'd often have to wait a day to hear back what the problem is and another day, at least, to get things replaced.
Ouch. That's really unacceptable, especially when you've paid for supposedly top notch support!
>> Hetzner is a little better on supportbut they have some annoying policies (See the DDoS thread from yesterday), I do like their automation though. I'm now mostly in Leaseweb and a couple CN-datacenters with my own peering mix
Hmm.. I haven't seen the DDoS thread.
But do you think Hetzner should be avoided, or did you just find Leaseweb that much better? Hetzner's dedicated servers look like good value for money, assuming there are no hidden problems like with OVH.
Hetzner is a budget host, as such their lower end offers should be carefully evaluated. Hetzner has a habit of shutting down servers if they're DDoSed rather than deal with the DDoS unless you're on a higher tier of service and SLA. Hetzner is, all around, a good host. Leaseweb better suits my needs though (I have a rack in .NL and .US)
Previous OVH customer and now current Hetzner customer here. I've been impressed with Hetzner's internal tools (Robot) and their support has been quick (had a faulty server, had it replaced inside of an hour).
Surely if users are flocking to the 'latest and greatest' you deal with that by gradually reducing the prices of the old servers such that you get natural price discrimination?
That's one possible solution, but then that needs to be accounted for in their price model to ensure they can pay off the cost of each server over its life, and that seems to be a substantial part of the problem they've run into:
The turnover on each new generation is higher than their models accounted for, and so reduces their lifetime expected revenue per server too much.
Doing what you suggest is certainly possible, but would likely mean they'd need to charge more early on.
It was every individual month for me. This combined with a dodgy spam filter led to me losing my server there. And now I can't reorder because of this silliness.
Oh well. I recently found out that I can get business-class internet at my home, so I'll be moving all that stuff inside my own network soon enough.
That's one of the things mentioned in the post, which seems like a reasonable place to start. If their goal is that older customers should ideally stay on the old servers, that's more likely if it's basically autopilot. If someone has to manually decide to renew, they're much more likely to notice that they can upgrade to a newer offering, instead.
They could stop the customer churn by simply changing the price to match the new offerings.
At the time I switched to a new server type I even asked their customer team if the new pricing would be offered to existing customers and the answer was a flat no.