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  1. #1
    Join Date
    Jan 2001
    Posts
    495

    RackShack Profitability

    I was sitting here pondering how RackShack can even get close to making money. I completely understand that they are a dial-up company and they are getting mostly incoming traffic from their dial-ups BUT that will only last to a point. Hands down servers are going to use much more bandwidth than 50,000 dinky dialups (guessing thats what they have).

    Lets think about the $99 / mo figure

    Now.. I figure they pay $325 for each server which is extremely cheap. I am not sure how much they are paying for bandwidth, how does $200 / mbit sound. You need to include power + sysadmins, CSR's etc == $10 / computer / month (probably variable cost)

    Now if I was to buy 10 servers and use 200 GB (not even the full 400) Lets figure it out

    .75 / MBit/s DEDICATED NON-STOP == $150
    Server Cost / 12 months == $ 28
    Variable Cost of Power / facility == $ 10
    ---------------
    $188 / month

    Can someone help me with the numbers and give me what they are probably paying? I know in 1 year when peoples contracts run out if they want to renew the $28 will decrease and the $10 may decrease a dollar or two but I don't see the bandwidth changing significantly.

    Let me know your guys thoughts and I would LOVE very accurate numbers on what they may be paying. I am very interested in this.
    James R. Clark II

  2. #2

    How Rackshack makes profit?

    I think Rackshack can easily make a profit at their rates. They have created a very solid model and from what I know it is working well.

    How? Well, the key element is the required bandwidth. The average Rackshack user/server is not approaching 300 GB transfer in a month. In fact, with their target customer the bandwidth usage is probably quite low.

    Based on information I received a couple of months ago from another entry level server provider, I suspect the vast majority of servers at Rackshack are using less that 50 GB transfer/month. In fact, the numbers for this provider were 95% less than 50 GB, 98% less than 100 GB, average was 37 GB. Because of these numbers the actual incurred cost of offering 300 GB vs. 100 GB is virtually nil.

    Now, before you all run out and try to duplicate....a word of warning. This only works on a particular target customer. For instance, a host with more sophisticated customers and resellers who had been in the business longer would not have the same experience. For instance, I know an "upscale" server provider who is averaging over 400 GB transfer per server.

  3. #3

    Cost of Server

    Don't overlook their sizable setup fees.

  4. #4
    Join Date
    Jun 2000
    Location
    Wichita, Ks, USA
    Posts
    1,984

    making a lot

    making a lot of money i doubt it, makign money, i wouldnt know....
    affordablecolo.com carrier grade colocation at a affordable price!
    Charles Baker - Company Operations
    1-866-316-HOST

  5. #5

    Clarification...

    Just fyi, rackshack's packages include 300gb, not 400, and I remember reading something somewhere (a post by HeadSurfer I think?) that stated they have something like a quarter of a million dialup subscribers. The only figure I could find right now was a Press Release from April of 2000 that stated '80k' and they were the 'largest dialup provider in texas'.. so 250k is not that much of a leap in the 19 months since then.

    But I really don't think the whole 'dialup users only take data in, not out' thing is still a major issue for them.. Looking at the MRTG graphs they have on the site.. looking at todays rates, they're using their Verio line at about 60% average, both ways.. all the other lines? All outbound data.
    Pure Energy Systems
    Shared Linux cPanel Hosting - Domain Name Registrations - SSL Certs - 16 years of happy clients.

  6. #6
    Join Date
    Dec 2001
    Location
    Houston, Texas
    Posts
    549

    I'll tell you why...

    Simple, they have the capital to do so. You mention Rackshack and their dialup services, but you don't mention any of their other business' ventures (and the ones that got them where they are today, even before forming EV1). They (and their rolling capital) didn't just popup over night, do some research - you'll understand why they can do, what they do.

  7. #7
    Join Date
    Aug 2001
    Location
    Houston, Texas
    Posts
    695
    I have discussed our model many times and the threads are here on this forum and on our own. Just like with our dialup product, our model works off of high volume, low costs, and lots of advertising. Sure, the set up fees help a lot there is no doubt. I'd be greatful if our servers actually cost $325 but they do cost more especially with 40 GB drives and 512 memory with where memory prices have gone in the last month. Those 2 items have caused a $80 increase in the cots of our raw server.

    I'be be happy to post our Q1 results (Deloitte & Touche reviewed) but it turns out I left my copy at the office but I do have a copy of our annual audit performed by Deloitte and Touche here.

    Our fiscal years are September 1 to August 31:

    2000 Revenue $10,513,512 Profit -1,619,358 (loss)

    2001 Revenue $18,093,440 Profit 1,125,172

    Currently monthly revenues now exceed about $2.6 million.

    Profit numbers listed above are actual net income not editda which would be roughly equivelant to cash flow.

    In the first quarter, our net income was approximately 10% of gross sales. Our second quarter of 2002 is looking like 9-11% net income on gross sales.

    There you are. There it is. We negotiate well, our costs are low, and we pass the savings along to our customers. Who do you think gets a better price? The guy that buys 10 servers at a time, 100 servers at a time, or buys them 1000 at a time?

    We've already done over 278 servers so far this month so it looks like we may do as many as 450 by the end of the month. If the trend holds, we'll exceed 2500 total dedicated servers assigned to customers by the end of Jan.

    I hope that this takes some of mystery out of what we're doing. Our network is now stable following the migration and service response times for reboots and restores are dramatically improved. A special thanks to all of our customers who say us through that difficult move.

    Robert Marsh
    Head Surfer Rackshack.net

  8. #8
    Join Date
    Jul 2001
    Location
    Australia
    Posts
    798


    Looks like they're doing alright
    Andrew Walenczykiewicz
    StyleMy.com

  9. #9
    Join Date
    Sep 2000
    Location
    NY
    Posts
    493

    also..

    You also need to view the option of making a model to loose money for xamount of time say 1 year.

    Then you are hoping that you have reached xamount of income to make profit with all the upsells and services combined.

    Thier setup fees cover the hardware, and you assume 60% don`t come close to using the bandwith they have purchased.

    upsells are definely a money maker, more hareware, supprt.
    -----My wife said it was ok----

  10. #10
    Join Date
    Aug 2001
    Location
    United kingdom
    Posts
    1,003
    That's some good stats from Headsurfer. I always like to see how a company is doing in terms of the profit they actually make, if they do that is . But in Rackshack's case, they certainly are making profit, and it's increasing too, which is a very good sign.

    Alan
    Alan Ho
    Former Systems Administrator

  11. #11
    Join Date
    Mar 2001
    Posts
    154
    The prudent companies are the ones who survive. Not the NTTs buying up Verio and losing billions of dollars a year without expecting to get close to break even for seven years or so. It's refreshing to see a company take its pieces as Rackshack has and form them into something coherent (from a business perspective). It beats stories like Microstrategy or any other dot-bomb by a mile.
    My answer to the most commonly asked question on WHT:
    Hosting Matters http://www.hostmatters.com
    FutureQuest http://www.futurequest.net

  12. #12
    Join Date
    Nov 2001
    Posts
    125
    NTT is a v. big company which loss is mainly due to the 3G phones .. which cost them over £6 billion .. to the UK goverment.

    Now they're working on the 4G - costing alot of money.

    Also NTT is always upgrading its Network ... IE :

    i believe recently they upgraded their UK to NY connection from 622Mbit to 2.1Gbit

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