How To Make Money

I know what you’re thinking, “Finally, a DreamHost Blog post I can USE!“

HA, you wish! Here we go…

Apart from being a mint, it seems to me there’s really only one way to make money.

Banking.

And I don’t just mean get money, like from people depositing it with you. Nor do I mean earn money that already exists, like you would from say, working or investing.

No, I actually mean it: MAKE NEW MONEY!

The fact that banks can actually create money is why they’re such a great business.. and also why the recent crash has been so hard.

How It Works, As I Understand It.

(Correct me if I’m wrong.)

For the purpose of this explanation, imagine there was only one bank in the world (which is actually a pretty good approximation, thanks to all those overnight intra-bank loans we’ve been hearing so much about in the news).

Let’s say their first customer ever, Joe the Plumber (yes, THE Joe the Plumber) comes in to Bank of the Universe, and deposits his meager savings of $250,000 (now FDIC insured!).

Great! Bank of the Universe (BofU) now has $250,000! Enough to run things for .004 femto seconds.

But, it hasn’t earned $250,000 .. it still owes that to JTP. And it definitely hasn’t created $250,000.. it just received it as a deposit. In fact, things aren’t too great for BofU at all … it probably has a deal to pay Joe some interest on that deposit. It’s also got to hold that cash / gold / pvc piping for Joe, pay rent on some buildings, employ some customer service people, manage a network of ATMs, and weave dozens of golden parachutes.

Not Great!

Which is why BofU has to make loans! Let’s say average guy John McCain comes in and needs a quick $250,000 for some campaign he’s running. “Sure,” says BofU, “you seem like a stand-up guy and this isn’t Fall 2008, take the $250,000 at only 5% interest!”

Well, now BofU is at least going to earn $12,500 a year! But.. they’re also kind of screwed when Joe Wurzelbacher comes in to get $20 for a back-siphon for the s-trap he’s funnelating.

But They’re Not

Because remember, BofU is not only the Bank of the Universe, they’re the only Bank of the Universe.. and so John just kept that loan in his account with them! And when he does spend that money, whomever he spends it with is just going to deposit it right back in their account with BofU!

In fact, just by making a little “John McCain owes us $250,000 at 5% interest” data base entry, BofU has now not only earned themselves $12,500 a year, they’ve also added $250,000 to the universe’s money supply!

Right now, BofU would be leveraged 2-1 (they owe Joe and John $250,000 each, but they only have the $250,000 Joe deposited in the bank). But, everything is fine. In fact, everything is so fine, they can go ahead and loan out that $250,000 AGAIN (maybe to Barack)!

And again!

And again!

And one more time!

And then?

And then?

And then?

Again!

It took thousands of years for banks to realize this, but when they’re big enough, they not only don’t need to back up their deposits with gold, they can actually pretty safely leverage their deposits at ratios of like 30 to 1, 50 to 1, or even 100 to 1.

And, the banks can earn a ton of moololah from this too. Not 100 to 1 (just because they’ve created this new money, doesn’t make it theirs), but at least 5% on that 100… instead of just 5% on that 1.

It just works out that very little of that actual money needs to be withdrawn by people on an average day.. and when they do there’s always those short-term inter-bank loans to fall back on!

(Except for in Fall 2008.)

But, despite the infrequent aberrations, overall I’d say it’s a pretty good system that works. It results in a much more efficient use of assets, which allows for faster growth and more “economic development”, than if everybody just did like the Russians and just hid their money in their sombreros.

And I should know, because we CREATE disk and bandwidth the same way!

As I may have mentioned before, we offer a lot more disk and bandwidth than we actually have on hand. We’re sort of like a “bank for computing resources.”

Of course, nobody deposits disk with us, but we go out and buy a little, and then sell a lot, and then nobody uses it. And in the end, for all intents and purposes, we’ve really turned that little disk space into a lot!

And, it’s a useful service because if everybody had actually gone out and bought that lot of disk space themselves, they wouldn’t have used 99% of it, and it would have been a waste! A big waste! A universal waste!

And so, we’re “leveraged” in disk. And we’re “leveraged” in bandwidth. And we’re “leveraged” in CPU. And the ratios are a lot more than 100 to 1.

And it works.

But.. when does our Fall 2008 arrive?

Should Be.. Never.

As similar as our businesses are, there are a few key differences between Banking and Hosting.

For one, we don’t owe our computer resources to our customers like banks do their money. We bought them. So there can’t really be a “run on the host” with everybody saying “give us back our disk and bandwidth we bought!”

For two, there can’t even be a “run on the host” .. what, is there going to be some awesome Internet news and suddenly everybody’s website gets 100 times the traffic and uses 100 times the disk?

For three computer resources are not money. Although it may be nice for us if they were… even if we were to somehow (remember, 100% hypothetical!) run out of disk or bandwidth or CPU, we’ll still have our money. And that means our people can still get paid, and we can buy more resources, or we can rejigger something, or whatever… but when a bank runs out of its leveraged resource, bam.

That’s It.

And I don’t just mean that’s it for the bank, I mean that’s it.

For this blog post.

Period.

(P.S. I hope all that stuff I said about banks is right.)

Gutenberg…

Whenever people ask me what I like most about my job at DreamHost, I invariably think of Johannes Gutenberg.

Gutenberg was a German goldsmith who pioneered mechanical printing in the 1400’s. His inventiveness took the power of the pen - for good or for bad - and amplified it, fostering a spread of knowledge that, ultimately, resulted in a burgeoning Renaissance.

The impact this had on science, business, technology and the overall democratization of knowledge that come with it cannot be overstated, even though Gutenberg himself would benefit little from it personally in his lifetime.

This is, of course, not to compare DreamHost itself to Mr. Gutenberg - we’re just a web hosting company with a penchant for free pizza and off-the-wall jokes that people sporadically find amusing.

And, when you get down to it, the reality of the situation is that most of our customers opt to use the power of the ‘printing press’ that we offer to publish pictures of their cats, indulge in navel gazing or publish rants embued with varying degrees of coherence. Among, well, other things.

The beauty of this, though, is that each and every one of these things is important to somebody, somewhere, for some reason. Even if it’s just the author and a select handful of readers.

Taken at their face, this may not seem like much - but I believe it is actually pretty important.

• While most people couldn’t care less about someone else’s cat, forever will there exist a memory of a beloved pet that can be looked at years later. Self-publishing has caused people to treasure the little things that enrich their lives - and, from time to time, enrich others as well (the rise of digital photography owes a lot to the fact that people can now so easily share their creations with others, for instance).
• While the web’s penchant for facilitating so-called navel gazing garners criticism at times, I believe that this, too, serves a purpose. The more we explore our own thoughts and ideas and allow others to peek into our world, the better our relationships with those people will be. I, for one, am happy to see the web evolve into a tool to connect people. It has become a humanizing technology.
• Those rants that annoy so many also serve as an outlet of sorts. For many, writing is in itself a way to explore ideas. It links people with similar ideas and - yet - exposes people to a vast marketplace of ideas. If nothing else, we could always use more ideas.
• As for those “other things”, well, I’ll leave those to someone else. We’ve hosted some pretty weird stuff over the years.

Picture of my cats - because I can…

While we at DreamHost are ultimately a commercial entity and benefit in kind, I like to think that we’ve played a small but important role in facilitating the free-flowing transfer of ideas and creative expression across the Internet. Good ideas, bad ideas, those that are well thought out and those that could use a little refinement.

I’m quite proud to have been even just a small part of all this.

It’s for that reason, really, that I’ve had mixed feelings in the weeks since deciding to leave the company for other pursuits. When you’re proud of what you do and you’ve been doing it for nearly a decade, that’s a tough decision to make.

And now, finally, I’ve reached the last few hours of my employment here. While I’ve got some personal projects in the works that I’m excited about (shameless plug: one of which may be of particular interest to Spore players, once it’s ready: PanSporea) - and I’m certainly looking forward to sleeping in - it’s going to take me a while to get used to not being a part of it all.

While I’ve already thanked most of the great people whom I’ve had the pleasure to work with, I would like to again express my gratitude toward the DreamHost Honchos (Dallas, Sage, Josh and Michael) in particular for their support and for building this great company in the first place.

I also want to thank my fellow co-workers, both past and present, who made the experience so much fun. I’ll miss you all.

Finally, I want to thank our customers for filling our servers up with all sorts of interesting and peculiar things and generally making the web as a whole a more entertaining and useful place. I still get a huge kick any time I run across a really cool site only to scroll down and find a link to DreamHost (something that has become increasingly common in recent years). We’d be nothing without you.

Nor, for that matter, the inspiration of a certain Mr. Gutenberg.

PS: For those of you in or around southern California, you can see an original Gutenberg Bible at the Huntington Library in San Marino. It’s definitely worth the trip (the botanical gardens are also pretty impressive).

See Dallas Talk

I have a couple of talks coming up at events that you might be interested in. The first one is at WorldBlu Live , coming up in New York City next week, Thursday and Friday October 16-17, 2008. In their words: WorldBlu LIVE is the only conference in the world that connects you to directly to the top leaders of organizations on the WorldBlu List of Most Democratic Workplaces™ as well as other thought-leaders and mavericks who will share their unique stories, best practices, and leadership strategies for building a world-class democratic workplace.

I’ll be speaking about how democracy is used within DreamHost and how it makes our business stronger. A bit of DreamHost history will be thrown in to provide some basis. I’m looking forward to this conference and I think there will be a lot of really cool talks from really interesting people. Some of the speakers that stood out to me are Tim Westergren, the founder of Pandora, and Philip Rosedale, the CEO of Linden Lab (the Second Life people). Those are two companies doing things on the Internet that will have a long-lasting impact, in one way or another.

The other talk is in Atlanta on November 12-14, 2008 and is at php|works, a PHP conference with a sister Python conference, PyWorks, running simultaneously. I’ll be talking about how to optimize web applications for the users of shared and VPS hosting services like DreamHost. It’s an hour long talk so help me out by showing up with LOTS of questions. There’s a lot of other good talks too, and I’ll be there the whole time.

If you’re in NYC or Atlanta around those dates come say hi!

ANOTHER Happy DreamHost Customer

A strange thing happened today.

Shortly after our typical free Fridays lunch was finished, another free Friday lunch appeared… delivered courtesy of Pizza Hut!?

What the?

Well, it turned out, Dan had helped a customer with a .htaccess problem with their site (and it’s not even completely working it looks like?) and the Happy DreamHost Customer wrote back:

I hope you guys are hungry!

Tell everybody to expect lunch on me.

Pizza Hut will be delivering a BUNCH of food and drinks in about an
hour.

And he wasn’t kidding!

That probably cost at least six months of hosting too.. thanks dude! I’d like to state that this is the kind of behavior we’d like to strongly encourage!

Way better than some of those other customers.

It’s just too bad it was on a Friday.

Let’s Save Our Environment Harder

I can’t believe it’s been over three years and the environment STILL isn’t saved!

I’ve been doing my part.

Not only has DreamHost gone green, I’ve been taking little steps in my personal life as well.

For one, I fight global warming every day by making the conscious effort to not recycle. I’m building up a lot of extra landfill to cancel out rising ocean levels.

I’ve even been doing my part to fight our dependence on foreign oil.

Every morning I drive to the farthest gas station I can get to, fill up my tank, then drive home and empty whatever’s left into my local sewer. That way I build up our proven domestic reserves.

Finally, I bought this t-shirt to disguise my true motives from all those real environment-haters out there!

But wait, there is one more thing I recently figured out I could do to help save a lot of environment.

And it has to do with you.

And no, it’s not lame tip like “Only read in the daytime.” or “Ride your dog to work.” Those are obvious.

In fact, it’s something so simple we’ll handle it all for you!

Basically, we’ve come to realize that if we were to upgrade all our old web and file servers onto new hardware (the stuff we’ve been using since May), we could probably cut our data center power usage about 50%.

And, since our data centers currently use about the equivalent of 200 single family homes, that’s a net environment gain equivalent of a small hurricane… but without all the pesky clean-up!

Nitty Gritty

Of course, one thing I do hate about the environment is all the dirt.

And, sadly, it’s not like we can just flip a switch and have all our servers upgraded. Not even if it cost $1,000,000 to flip that switch (which it does), the switch is still SO big and heavy it’ll probably take close to a year before it’s all the way flipped!

Along the way, at times things will inevitably get dirty.

There will be hiccups along the way. In fact, we already did a few test migrations and there were plenty. And they were more like throw-ups. I’d like to apologize right now to everyone who was an unknowing guinea pig and suffered from some down time.

Now, here’s how to make sure the same problems don’t hit you!

• Make sure your email clients are all set to send and receive email using your full email address! You should have already been doing this for years at this point, but some people are apparently still logging in with the old (deprecated) m########-style mailbox usernames. BOOOO!
• Make sure you don’t have a .dataglob in any paths for any configuration files for any software you have! That is, if you see something like “/home/.blahblah/username” in a configuration file for something you’ve installed on your website (even one-clicks from our panel!), change it to “/home/username” immediately! We’re going to try and automatically find and replace those for people as they’re moved, but it’d be best if they weren’t there at all!
• Make sure you ftp/ssh/whatever to your own domain name and not server.dreamhost.com. That’s because your server will probably change at some point in the next year, and if you’d just been connecting to your own domain, everything would be fine!

That’s really it. Other than the fact that it will save energy, the new set up should also:

• Be more stable… we’re phasing out shared file servers (filers) because they were just too big a point of failure.
• Be higher performing… the new servers are on average 4x “beefier”, but we’re putting less than 4x the number of customers on them.
• Save us money… not just on data center costs, but also on our green energy credits, and management costs too (there will be less overall servers to manage).

Then, what do we do with all that extra money? Well, our original plan was to short financial stocks, but now we just don’t know…