A Time of Magic

It’s probably something that many online businesses dream of but are you actually geared up to cope with the knock-on consequences if your business really took off by growing, say 10 fold, 100 fold, perhaps 1000 fold?

Realistically I suspect that most places aren’t expecting to grow quite that much and therefore never consider the consequences if somehow they did.

The first problems are likely to come when you grow around 10 to 100 fold in that you’ll find that you can’t simply keep upgrading the bandwidth of your hosting service anymore and hit the limit of the shared hosting services that most people use. Beyond that, the price jumps somewhat but the service levels available jump even more once you move into VPS (Virtual Private Server) hosting and find that instead of sharing the server with several hundred other users that there’s only a handful of others thus the speed of response of your website jumps quite dramatically. The jump upwards to dedicated hosting need not be any more difficult but it does open the door to running the server as though it were just sitting on your desk.

However, that does assume that your software can actually cope with that level of growth. For example, have you allowed for tens of thousands of customers instead of merely hundreds in your customer reference number? Many places find that such problems kick in suddenly and dramatically. If, say, your products are initially targetted at country areas you could find that you’ve a builtin assumption that there would never be more than 1000 customers in a given area. Fine for the country, but what if you start moving into metropolitan areas and find that you have more than 1000 customers in a single area but only three digits to refer to them?

Finally, don’t forget that as your customer base grows, so too do the number of “awkward” customers who’d like you to change things to suit them. Without a flexible system, you could find that you can’t deal with them at all.

The Northern Rock mortgage bank got itself into trouble by expanding much faster than it’s deposits and thereby needing to go to the wholesale markets to borrow more money to fund it’s mortgages.

Quite ridulously it ended up taking almost 20% of the entire UK mortgage market in the first half of 2007 by doing this which is pretty amazing considering that it’s far from being a large mortgage bank. Naturally, that rapid growth was a sure sign of problems ahead and just two months after making that announcement the bank made another one saying that it was in trouble.

With such a large customer base, the government were forced to intervene to support the bank, to the tune of £25 billion ($50 billion!) which is around $2000 for each family in the country.

Naturally, they want their money back but that’s not so simple. Yes, the bank has assets behind it but those assets are mortgages and not realistically useable to get cash directly anytime soon. Therefore, all kinds of financial engineering projects have been proposed to get the bank back on an even keel. Unfortunately, nobody wants to cover that £25 billion so the government has just proposed the sale of £25 billion of bonds to fund it.

Great, but… who would buy £25 billion of bonds from a bust bank? Well, actually, the government would or rather it will back the bonds with a guarantee which amounts to the same thing. Doesn’t that mean that the government is still out £25 billion. Emm, yes, it does.

In the fight against online fraud, the latest weapon being added to the banking arsenal is the card reader.

This is a little gadget that you’ll soon get from your bank which you use by inserting your card, entering your PIN and then quoting the code number that is generated when you’re making an online purchase. Sensibly enough the first banks to introduce it are providing it free to their customers but I’m sure that’ll change.

How useful it will be remains to be seen. If you make a lot of online transactions then clearly you’ll end up using it a lot and presumably will at least remember where you put the thing when you need it for your latest purchase. Whether those of us who make online purchases relatively rarely will remember where it is and whether the batteries will still be OK when we find it is quite another matter.

That’s far from the greatest problem though. The technology requires that you have a chip on your card (and a very new one at that) which therefore means that it can’t currently be used for sites based in America which, of course, is the largest source of online retailers in the world in that chip cards aren’t currently being issued there.

A technology looking for a problem? I suspect it will turn out to be just that.