Q: Is the host making a profit?
95% of hosting companies are not making a
profit and are running off venture capital.
Their money will only last so long as VC is
now not available. Things will be sacrificed,
new operating systems, redundancy on the
network, and then sell or close the business.
Most hosts will say that they PLAN on
growing within the upcoming months, but
many hosts have been saying that for the
past year, while losing customers and
revenue.


I just saw this on a webhost's Q & A....I dont believe it is as high as 95%....are most webhosts here making a profit??

????

Why would people do it if you didn't profit.

It depends on the kind of web hosting companies you're looking at. Those that have venture capital are likely pretty large... And like the rest of the Internet sector in general, many companies are still on the road towards making a profit. Take a look at Interland (http://us.biz.yahoo.com/p/i/inld.html), for example: net loss was twice as much as gross revenue! I think it's true that most companies on that scale are losing investors' money... I'm not sure if it's quite as high as 95%, though.

But then again, one of the main reasons of venture capital, going public, etc. is to raise money to finance growth (another big reason is to start cashing in on the value of the company). Part of that growth period will almost certainly involve net losses; it's just a matter of how quickly you can make a return on that investment.

Originally posted by NetXL
Why would people do it if you didn't profit.

Because the people doing it *are* making money -- it's the "investors" who aren't.

As for why these investors were willing to throw away so much money, just look at Amazon... or etoys... or Bre-X, for that matter.

As far as webhosting companies overall go, I doubt it's 95% which are losing money. That figure might be accurate for venture capital-backed companies, however. I know that rackspace is making a profit (at least, their advertising everywhere indicates that), but I'm not sure about any other major VC-backed webhosts.

As Rehan alluded to, people try to grow their companies, even if it means operating at a loss, for a period of time so that they can make more profit later... unfortunately that doesn't always work, especially when conditions change as rapidly as they do on the Internet.

Originally posted by cperciva


Because the people doing it *are* making money -- it's the "investors" who aren't.

You got it right there.

Unfortunately we will see this happen in the upcoming year, more and more companies WILL close .. heck, who woudl ever tought Exodus and COLO.com would go down ? .. the thruth is VC's don't stick aroudn forever, and in a coupel of years if they don't start seeing some return, they will just pull the plug on you, sell the company to get any little $$ they can and move on

it's just business :)

Originally posted by CRego3D

.. heck, who woudl ever tought Exodus and COLO.com would go down ?


Umm...I knew colo.com was f'd from the moment we tried to contact them for colo space. Of course, I'm not exactly known for my astute business prowess ;).

That 95% figure is possibly just one of those statements we all make from time to time. The only way to accurately make such a claim is to examine all hosts or do some scientific randomn survey.

And even if that figure is true, what import does it have? It makes a lot of difference how the losing hosts and the number of accounts each has is distributed.

I don't know, but assume only a small percentage of all hosts carry a very disproportional amount of sites. So whether those big time hosts are making or losing money may be a lot more enlightening than the percentage of all hosts.

It's probably not 95%, but probably pretty high. I mean how many new hosting businesses start every day and go out of business within a couple of months?

Too many entrepreneurs, not enough good plans. What makes everyone think that they can jump into the web hosting business and get rich? And like others have said, what makes investors want to risk their money on it?

But if you don't count all of the rinky dink brand new hosting businesses, then the 95% is probably way off.

Definitely some of the stupider huge hosting companies were a little too spread out to handle the IT slump, but some of them will recover if they can get control of their spending.

IMHO.

That may well be accurate for the large, visible hosts. Let's keep in mind that most of us pass under the radar of anyone collecting this information.

The problem is that to maintain that size requires an extremely heavy advertising budget which has traditionally eroded all the profit.

Maybe that's a good lesson for all of us. Start your business on a sound basis. Make sure all your offerings can be profitable. Don't buy business by making deals that can never make you a profit. And as you grow, be patient and be happy with controlled regular growth. The greatest two impairments to success are fear and greed. Don't try to get rich quick. Just try to build a stable, successful, and enjoyable business. Don't let it get out of control like the giants of our industry have done.

One other caution is to be careful in how much you invest in equipment or facilities. We are in a business where technology renders equipment obsolete quickly. Yes, the large hosts have gotten venture capital. In addition, they are paying huge amounts of interest.

Never equate volume of business with quality of business. Its not who has the most customers. It's who has the best customers....who has customers who are good for his business and can be hosted profitably.

My previous business venture was a family owned business. Me and the Dad. His opinion was sell, sell, sell. That's the hardest part he said. I disagreed and said you can sell all you want but if you don't service any of it you'll be out of business and left in debt. I equate them as 50-50.

So he sold and sold and sold but would never let anyone properly service the customers. In turn he would always talk about all the "new" business he sold but it was really just replacing business that was lost. So the company got to a point and stagnated.

Customers were unhappy and sales became hard. At which point he realized that service was just as important. Most people don't like a salesman but they gauge the company on how well it services them. Once the salesman is out of the picture its up to service, support, etc. to keep the customer happy.

So are these large companies keeping the customer happy? I believe that will tell the tale of who weathers the storm and who sinks.:cool: