A WWW publishing horror story
How to budget $180,000, but spend $750,000 without launching
They had a plan early in 1994 to publish in cyberspace. Their business model involved selling dial-up access to their site, a glorified BBS, which would also offer a gateway to the Internet.
This venture had a year 1 cost budgeted at $180,000 for equipment and payroll. The plan was to buy a UNIX workstation with lots of RAM and disk space along with associated routers, modems and peripheral hardware.
By the time the equipment was delivered, and the UNIX administrators and consultants were done setting up, the online world had changed. Competing online service were in a price war, and monthly access fees plummeted from over $20/month to around $8.
The new venture's business model was out the window. There was no way to make money at $8 a month on a service that had been built on a model positing $25 a month. One issue was the $63,000 annual salary of the UNIX administrator.
The service also found that users were not attracted to the command-line access offered by the UNIX software they had purchased. Competing services were already offering attractive proprietary graphical interfaces.
The venture discovered that developing their own custom interface would be a very expensive, slow and uncertain proposition. No one in the enterprise had experience developing software - they had no expertise from which to judge the quality or suitability of the software they nevertheless needed to be competitive. A couple of expensive, and fruitless, false starts brought this lesson home.
About this time, the World Wide Web came onto the scene. The enterprise rejoiced: here was a medium that would run on their equipment for which little development would be necessary. The enterprise thought that they could offer Internet service to users, who would then browse their content pages.
Unfortunately, the enterprise had invested heavily in 64 industrial-strength 9600-baud modems and the associated peripheral hardware. At the same time they would offer 9600-baud service, startups were offering 14,4000 baud service and promising 28,800.
Sixty-four new modems would represent a heavy expenses at $2,000 per. Worse, they discovered that a license for the latest UNIX PPP software (as opposed to older slower SLIP software) would cost $2,000 a copy as well, with one copy needed for each modem.
By this time the enterpise had a home page up, and was beginning to grow. hile they struggled with a business model, spending money on staff and studies the Web traffic grew to the point that first their Internet connection and then their Web server could no longer handle it. More money was spent.
To make the story shorter, the enterprise never launched in year 1. Technology moved too fast and outpaced their every plan. Nevertheless, year 1 costs grew to $750,000, even though their service was outmoded and straining under overburdened equipment.
I often wonder how much better off this enterprise would have been if they'd had the option of launching on the Mac platform. They could have done without a UNIX administrator, could have started with a $2995 Workgroup Server and added as they grew or the world around them changed. If all failed, they would have owned Macintoshes would could be put to use in other areas.