Adam Stanhope attributes his initial interest in Thailand to serendipity. He studied the Chinese language as an Asian studies major at the University of California at Berkeley. Frustrated at all those symbols, he switched to Thai because it has an alphabet. Today, his wife is Thai and they take their daughter to visit her grandparents every year.
In 1997 Stanhope learned the domain name bangkok.com was for sale. He decided to buy it and create an English language hobby site around his love for Thailand. But he didn’t have the 160,000 bot to ransom it from its Thai owner. He negotiated to buy the domain in installments (at the time 160,000 bots translated into $6,000) and got a few investors to pitch in. Fortunately for him, the Asian currency crisis hit, devaluing the bot. He ended up only paying $4,200 for the domain name.
The founders of Bangkok.com, who are based in Boston, Massachusetts, planned to resell the domain later for big bucks. But to underwrite their investment, they decided to offer email forwarding to anyone who wanted a Bangkok.com domain name. “Our vanity email address wasn’t terribly successful,” says Stanhope, who is the general partner. The founders sold 100 year-long subscriptions at $35 each.
The market told the founders they needed to revamp their formula. So they decided to build a community centered around interest in Thailand. They offered free email, added content and sold advertising to those interested in reaching people who wanted to do business with the Thailand market. In addition, they offered free Web site hosting for sites about Thailand.
By the end of 1998 the owners had created a significant virtual community who used their chat services, Web hosting and email capabilities. Bangkok.com was becoming the biggest online community centered around Thailand.
The Decision to Outsource
However, their success was creating a new problem. The founders discovered email became “a major time sink.” One employee spent three-quarters of his work week forwarding email using the software the partners wrote themselves.
Web-based email made sense because it meshed with the way the Thai log onto the Internet. There, it’s the exception to have a computer at home. Instead, the Thai cruise the Internet at an Internet cafÈ, at work or from their university computer lab. The Thai purchase a card and receive 20 to 50 hours from the ISP issuing the card. When that card is used up, they may buy a cheaper card from another ISP. “They have no continuity in their email accounts. Web-based email was perfect for this environment,” explains Stanhope.
The partners were discussing outsourcing their email to a Web-based supplier when they read an article about Commtouch in Wired magazine. They contacted the Mountain View, California supplier in the spring of 1999. At the same time, they also researched other service providers. They eventually selected their original choice “because of† time-to-market issues, costs and customization,” reports Stanhope.
Contract negotiations took two weeks. They have already renewed the initial one year contract.
Like most Web businesses, time-to-market was crucial. “We wanted to act quickly because we wanted to be the first company in Thailand to offer Web-based email,” recalls Stanhope.
Commtouch promised Bangkok.com it could be operational in one month. Stanhope says the supplier could have had the company up and running in a week if he didn’t have to hire a designer to create the images and graphics required for the new advertising campaign.
A Revenue Sharing Arrangement
While the designer was drawing, the partners notified their customers the company was migrating to Web-based email. They gave every current customer 48 hours to select their new email names before opening up the offering to newcomers. “We wanted the old people to have first dibs on the new names,” says Stanhope. At the time Bangkok.com had 30,000 email customers.
Cost was an important factor. Bangkok.com, unlike other Web-based start-ups, deliberately decided to not seek any venture capital. The only working capital is the revenue generated from advertising sales.
The partners liked Commtouch’s suggestion to share revenue. The buyer must meet a minimum guarantee each quarter. The two partners then split the advertising revenue that flows from the banners on their Web-based email. The payments periods are quarterly.
“Revenue sharing felt good to me because now there was equal responsibility for risk,” says Stanhope. The guaranteed minimum “wasn’t a token number” but it wasn’t so tough the founders would have to stay up late at night worrying about it.
The service level agreements (SLA) are informal. They center around uptime. In addition, the Web site owners wanted to be assured they would have “immediate access to a tech person with authority,” adds the general partner.
Stanhope says the company has been “very informal” about accountability. Instead, he has adopted a common sense attitude. “Our service has been excellent so it hasn’t been an issue,” he reports. In his business, it’s easy to know if his customers aren’t getting the service they were promised. If their email accounts or Web sites are not responding, Bangkok.com hears about it. “If we started getting a lot of complaints from our customers, then we would look into the SLAs,” he adds.
Communicating Daily With the Supplier
Even today, Stanhope says he remains “in constant contact” with his Commtouch sales person. They communicate daily using an instant messaging program.
The partners also realized a portal site like theirs must continually add new services in order to stay ahead. There was no way they could afford to build every cool new service idea in-house. Stanhope says they plan to outsource other new services to help grow their community.
Stanhope points out the outsourcing relationship also benefits Commtouch. His company became a buyer before Commtouch went public. “We provided them with a large and fast growing audience,” says the general partner. Currently Bangkok.com has 100,000 accounts at Commtouch.
Outsourcing buyers must have realistic expectations about their outsourcing relationships, says Stanhope. He would even advocate outsourcing if the cost of the contract was more than the cost savings “if the loss is part of a bigger plan.”
Negotiate a contract that works in good times and bad, he advises. This year the CPM (cost per thousand, a standard that determines advertising rates) on the site’s advertising dropped for the first two quarters before rebounding. Fortunately, he doesn’t have a big nut to worry about when it comes to his outsourcing provider.
Lessons from the Outsourcing Primer:
- Outsourcing allows companies to offer new services that they couldn’t afford to add themselves.
- Revenue sharing helps both parties in an outsourcing relationship by sharing both the risks and the rewards.
- Negotiate an outsourcing contract that will work in good times and bad.