Everdream

1. Everdream internet business models text and cases Donatas Sumyla

2. Content • Overview of the company; • Goals & strategies; • Sales and marketing; • The Everdream product; • Customer Service; • Economics; • Primary stakeholders; • GBF analysis; • Success or Failure?

3. 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 ;

4. 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;

5. 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;

6. Overview of the Company • Everdream’s package included: • 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;

7. 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;

8. 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 business-oriented goods and services through BizCenter on its Internet portal;

9. Management Team • Gary Griffiths – CEO; • Andy Efron – Director of Customer Service (Stanford Business School); • Brian Golson – CFO (HBS ’97); • Russel Rive – CTO, co-founder;

10. Goals & Strategies • Everdream’s mission was: • To “simplify the computing experience for small business”.

11. 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;

12. Goals & Strategies Two target markets: • Small businesses with 20 or fewer computers; • 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;

13. 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;

14. 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;

15. 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;

16. The Everdream Product • Hardware; • Software; • The Dream Side/Flip Side; • Customer Support; • Company Culture;

17. 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 e-services (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;

18. 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;

19. 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;

20. 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;

21. 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;

22. 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;

23. 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;

24. 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;

25. 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);

26. 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;

27. 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;

28. 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);

29. 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

30. Current Primary Stakeholders • Venture Capitalists: • Draper Fisher Jurvetson; • Canaan Partners; • New World Ventures; • Hewlett-Packard Company; • Portage Venture Partners; • Baird Financial Corporation;

31. 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;

32. Success or Failure? • I think success. • Reasons: • Bright minds; • Good, real-world idea; • Simple business model; • Correct target market and sales channel; • GBF strategy;

33. 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;

34. Current Customers • FedEx (automotive and transportation); • Korean Air (automotive and transportation); • Sylvan Learning Centers (education); • Equity One (financial services); • Premier (health care);

35. Questions???