The True Costs of Outages

By Catherine Foster, Director of Product Marketing, Message Systems

Given the challenges of the current economic climate, IT departments are under even more pressure to do more with less. Most ISPs are seeking ways to increase revenue while simultaneously minimizing IT operating expenses, but they also need to consider where they can save money with minimal impact to the customer experience. One area that can provide an excellent return is in the analysis of the economic and brand impact of e-mail outages.

For large carriers, the difference between using systems with 99.99 percent (four nines) and 99.999 percent (five nines) availability can mean up to $4 million in cost saving per year. By using the chart below, companies can figure out the impact of e-mail outages by plugging in their own numbers to the formula.

As you’ll see, a solution with 99.99 percent (four nines) increases customer care related components of total cost of ownership by 1,000 percent year over year or, in the case of this example, exactly $3,996,000. The expenses incurred from outages are applied toward the operating expense budget, which means it’s a direct hit to the bottom line every year. The Telecom Industry Standard cost per call is documented in Call Center Strategies 2009 as $8.88. Other sources place the cost somewhere between $7 and $13. Carriers typically use a cost per call of $10 to measure outage impact, which would place the cost even higher than the example above. Consult your vice president of customer care to determine the actual cost per call and the increase in call volume during an outage.

While not included in these numbers, scheduled maintenance can impact availability for solutions which must be taken down for the maintenance or do not have fail-over capabilities. A solution with architecture that supports flexible, non-customer impacting maintenance will help to further reduce economic impact of maintenance-related outages.

Another thing to keep in mind: Customers usually contact the carrier first for all service-related issues, even if the carrier is not the source of the problem. For example, Research in Motion (RIM) recently had a nationwide three-hour Blackberry outage. This outage impacted all of the major carriers in the United States. As service providers work with more partners and integrate more solutions into their service offerings, not only do they need to be aware of the economic impact of their own outages, they need to plan financially and tactically to manage outages from other sources in cost-effective ways.

In addition to tangible economic impact, outages can also have severe impact on a carrier’s customer base. Without having specific company information, it’s impossible to discuss many of the brand impacts from outages. One area that can be explored is customer satisfaction. We all know that customer satisfaction plays a big role in revenue generation. The cost of keeping a customer is less than the cost of acquiring a new customer. There is no industry more prone to the impact of customer satisfaction-drive churn than the communications industry. Some past surveys have indicated that as many as 28 percent of customers who are impacted by service-related issue decide to switch providers annually. If a customer leaves due to outages (service issues) before the company has recouped the customer acquisition cost, then there is an economic impact.

All companies know their churn rates and their acquisition costs. Most companies, especially communications companies, ask customers why they are closing their account. With this information, companies can roughly determine the outage impact on brand loyalty in economic terms. For example, consider a company that averages a gross profit margin of $100,000 per hour from Internet sales. The Web site crashes and orders can't be taken. How much does this outage really cost a company? Much more than $100,000. Sure, some customers who tried to buy during the outage will come back at a later time. However, some will buy from a competitor instead of waiting for the outage to be resolved. If they’d been able to make their purchase, they would have been a satisfied customer, and satisfied customers can become brand loyal customers. If, however, the customer had been able to make a $100 sale, and then repeated it once a year over a 10-year period, then the economic loss is in the hundreds of dollars. The loss is much greater than the loss of the initial sale.

There are also intangible economic impacts associated with outages. These include the value of redeploying resources to other projects or balancing out the workload to improve employee satisfaction and performance (thereby reducing the costs for recruitment and training new resources), or applying resources to a critical project and reducing the project timeline for improved speed to market.

ISPs need to understand that minimizing IT investment has its own costs, particularly when it comes to managing the efficiency and availability of e-mail. If spending a little bit more on a more robust message management platform ends up saving millions of dollars per year and helps to reduce customer churn, it might prove to be worth the investment in the long run.

As director of product marketing, Catherine Foster oversees all product-marketing activities, including product marketing strategy and plans, branding, product launch campaigns and lead generation for Message Systems, a worldwide provider of message management solutions for e-mail service providers (ESPs), ISPs, social networks and large enterprises that need to manage large volumes of e-mail. In Foster’s two decades of technology industry experience, she has developed major products for some of the world largest communications companies such as Cox Communications and BellSouth, and has developed initiatives that have reduced the amount of spam delivered to message customers by as much as 30 percent. Foster’s product experience ranges from Voice over IP, television, video and wireless, to messaging anti-abuse (anti-spam, anti-virus) products. In her current capacity at Message Systems, she employs her extensive first-hand experience in finding the balance between effective spam filtering and the delivery of legitimate email. Foster is an active member of the Messaging Anti-Abuse Working Group and Women in Cable and Telecommunications (WICT). Prior to joining Message Systems, she served as director of customer IT services for Bizanga, senior manager for messaging data products at Cox Communications, and director of consumer and business IT services at BellSouth Telecommunications. Foster holds a bachelor’s of science degree in technology management – Cum Laude from Southern Polytechnic State University.