Case Studies for the Cost of Downtime

In a previous blog series, we reviewed techniques for IT operations teams to quantify the possible cost of downtime.

For online businesses, downtime can be damaging because it is a direct interruption to the availability of the core business. In the last several weeks, there have been notable occasions where businesses have offered direct financial compensation to affected customers, helping us to also understand how to handle the customer impact that downtime might cause while also quantifying the cost of downtime.

Example 1: Netflix had an outage - they responded by providing 5% rebates to affected customers

What Happened:

As has been widely reported, on Monday March 24^th, Netflix had an 11-hour long outage of both their website as well as much of the infrastructure used by their shipping centers to process DVD rental delivery. Netflix customers were unable to adjust their shipping queues during the outage and shipments scheduled to go out on Monday were delayed until Tuesday.

On Tuesday March 24^th, Netflix took an unusual step and proactively provided a 5% rebate to the monthly fees of all Netflix customers who had DVDs that didn’t ship on schedule due to the outage.

Reactions:

Reactions to this step were mixed and split into three overlapping groups.

• Group 1 lauded Netflix for proactively refunding customers for the outage. See Gizmodo and the Two a Day blog.
• Group 2 seemed inclined to support the rebate approach and size, since losing one day out of the typical 20 shipment days in a months works out to 5% of the available shipping days in the month. See Consumerist.com.
• Group 3 seemed happy about the concept of the rebate, but disappointed in the actual dollar size of the rebate. In particular, if you pay Netflix $10 a month, 5% means you are getting a 50 cent credit, in pure dollar terms a small number indeed. See Wired’s Gadget blog, MaximumPC.com, CNBC’s Pops and Drops, Hacking Netflix.com which asks if customers would prefer a free DVD, and Daily Tech which compares 5% to receiving a gumball.

Our Perspective:

Communication after a downtime incident occurs: The Netflix team deserves significant credit for taking accountability for the outage and proactively providing rebates to customers. At the same time, uncertainty in the customer base remains because, as mentioned in PC World, the Netflix team has not described the cause or long term remedies around the reason for the outage.

Cost of downtime: Offering a 5% monthly rebate to a decent percentage of customers makes the cost of downtime significant. Netflix has not yet disclosed the full cost of the rebate program, but even small dollar rebates such as Netflix’s can add up to significant dollar figures overall.

Lessons learned: Lessons that can be taken away by others include the value of communicating the cause and expected resolution time for the outage as well as the goodwill that rebates can generate.

Example 2: Threadless had ongoing website issues  during a major online sale - they responded by extending the sale and provided $5 off coupons

What Happened:

During the week of March 17^th, apparel provider Threadless had significant server issues and website downtime during their spring sale. On March 20^th, Threadless apologized for the server issues, extended their Spring Cleaning Sale, and offered $5 off coupons to the first 5,000 purchasers with orders over $50 dollars. Particularly interesting to regular readers of this blog, which has explored the implications of downtime by infrastructure providers, the coupons were funded by their hosting provider, Rackspace. As part of the outbound communication on the Threadless blog, Threadless also offered a webchat with their CTO to answer any questions members of the Threadless community had about the downtime incidents.

Reactions:

In general, blog reactions both on the Threadless blog and on interested third party blogs was very positive. Most customers seemed happy about the rebate, although there was minor grousing around customers who ordered prior to the availability issues.

Our perspective:

Communication after a downtime incident occurs: The Threadless team deserves significant kudos. They communicated to their audience and were transparent about the downtime incident, and even made their CTO available to discuss the cause of the problem with their customer base which helped to regain customer trust. The $5 coupons seemed well appreciated by the Threadless community.

Cost of downtime: We can assume there was of course lost business during the sale, but the extension and rebates likely helped make up for possible dissatisfaction and revenue lost. Threadless has not publicly commented on the direct financial implications of the downtime to date, but it would be interesting to see the final impact. Most interesting from our perspective was that their service provider, RackSpace, funded $25,000 dollars worth of coupons, a significant chunk of change considering the typical size of outsourced website hosting contracts.

Lessons learned: Clear communication of causes and remedies of downtime as well as olive branch measures such as coupons and rebates can go a long way in minimizing the effects of downtime, when it occurs.

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