[jraph]

I don't understand.

I can understand VMWare doesn't want to keep doing this, but with $8M, assuming a 100k annual salary, you can dedicate 80 full time employees to this customer yearly.

I understand 8M is nothing next to 13.5B, but that can't be unprofitable, can it? Or the contract is too low.

[baq]

taxes, margins, capex, etc. means you could do maybe 10. offshored to somewhere with competent people, 20-40 depending on location.

[alephnerd]

There are several flaws with your assumptions

1. "assuming a 100k annual salary" - the cost of salary is 1.75x stated wage, so in reality it's $175k

2. "you can dedicate 80 full time employees to this customer yearly" - you mean you need almost a hundred bodies per customers?!? In fact, this is a major reason to fire a customer. It means they are demanding and trying to outsource their entire org to you. Either pay up or piss off.

> that can't be unprofitable, can it

Nope.

> Or the contract is too low.

Exactly.

[jraph]

> 1. "assuming a 100k annual salary" - the cost of salary is 1.75x stated wage, so in reality it's $175k

I know, this was ballpark thinking, it's not a fundamental flaw in my thinking. 100k with taxes is still a 60k salary and that's about what I was thinking. Not great everywhere, but still good in many locations. I also don't know how much support people are usually paid, and 200k is still 40 people.

Now, indeed, I wasn't imagining hundreds of people per customer required. I'm willing to believe it's realistic for some kinds of businesses, for very big customers.

[everforward]

60k is likely very low for this kind of support. The people calling in are generally IT professionals that have issues a script won't solve.

When I worked with VMWare, it also wasn't uncommon for us to have support on site. If we were doing a big migration or had a significant issue, they'd send someone out for a week+.

They likely paid a premium to have support willing to travel for significant spans of time, plus now they're paying for hotels, daily stipends, etc.

Then you need labs for engineers to try to replicate problems, office space, general overhead like taxes and payroll providers, etc.

Then there's costs to the platform itself from some customers. E.g. small customers tend to be less homogenous. Every Fortune 500 has a SAN, many small companies don't. Now you need an "integrates with EMC" storage option for big companies, and an "integrates with everything else" option for small companies. Big companies want a service mesh, small companies want a billion different networking configurations, etc.

Basically big companies tend to resemble each other and view their differences as a competitive advantage they will pay their vendors to support so they can keep. Small customers diverge a lot, don't want to and/or can't afford to pay for the changes they need, and are generally more price-sensitive due to their ability and ability to switch vendors.

So simultaneously the small clients are profitable, but at a lower margin than bigger customers, and more willing to migrate away. Rather than taking a risk that they can do enough development to keep the small customers, they'd rather double down on the customers that can't switch, raise their margins, and cut their risk.

[alephnerd]

And $8m is LOW.

F1000s will spend the same amount on AV or endpoints alone.

For backbone infra, you can expect a price that is 4-6x higher, as network security, IT infra, etc is bundled.