Letter of Intent=Fail

Hi DrPeering -

When should a colocation provider deploy a peering switch fabric for its customers?

Margie42 [at] Wresting [dot] org

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I will save you a lot of time and effort by sharing the experiences of one IX who used the “Letter of intent” strategy.

Success-based marketing - get “Letters of Intent”

Faced with the cost of deploying a carrier grade ethernet switch, the marketing wizards at one IX decided to reduce their financial risk by only purchasing the peering switch in locations where the sales people can find 10 customers that say they will connect to the switch if one existed. A signed “Letter of Intent” would be the vehicle communicating this interest.

“If the customer is interested in public peering, tell them we will deploy one for the customer base when ten have agreed to buy ports when it is available. If they aren’t able to sign the letter of intent, then they aren’t ready to sign a purchase order for the product.” — Marketing Lead
Sales people visited customers and prospects. When asked “Do you have a public peering fabric, and what are its price points?” the sales person replied, per script, “We don’t have one there yet but we will deploy one when we have enough people asking for one. We have a letter of intent to sign if you are interested.”

Did the prospects sign the letter of intent? No ! They wrote on their notepad:

“No Switch”.

After 100 such conversations, very few signed the letter of intent, and many went to the competition and helped them build their critical mass.

Here is what the colocation provider learned from these interactions. You have to look at things from the customer perspective. WHY DIDN’T PEOPLE SIGN THE LOI?

1. Not authorized to sign. The prospect for peering services were not in the mindset position to commit to sign anything; they were exploring the options. Further, they often didn’t have the authority to unilaterally sign a document on behalf of the company - it may be a team decision or a decision for someone else. In any case, they now have a slightly negative taste in their mouth since they were being put in the position of admitting to themselves and maybe others that they are not empowered to sign anything.
2. Not committed to a single solution yet. They were often not committed to the specific colocation provider yet, so they strategically wanted to keep their options open. It would be premature to sign any verbal or written commitment of any form to anyone.
3. No immediate benefit to sign. What is the benefit to the customer of signing a letter of intent? There is none, except perhaps the delayed benefit of a switch being available perhaps at some point in the future from this colocation vendor. There is zero benefit at the instant that the request to sign is being made.
4. A Brand reason not to sign. The negative of signing is that the colocation provider will no doubt use this letter of intent to help them sell peering ports, or get the peering switch in place, using the customer network as a lure.
5. IX Not committed. No switch signals that the IX is not committed to public peering. This represents a risk to the ISPs that commit to the switch with the anticipation of a sufficiently large population to exchange traffic with. If they aren’t committed to public peering, why should we take the risk and help them build critical mass?

Conclusion

When these experiences were assimilated and shared with the colocation executive team, the marketing mandate was overridden. Switches were purchased and deployed at all colocation facilities. Most of the switches reached twenty ports sold within six months.

The “Build it and They Will Come” strategy will not always work, but the LOI strategy for colocation operators is a well paved path to fail. During the time the salespeople were asking for LOIs, the customers were going to the competitor that already had a switch and were building critical mass.

– DrPeering

DrPeering [at] DrPeering [dot] net