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  1. #1
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    How to compete with the undercutters?

    I'm really surprised with the price elasticity of web hosting... Seems like the general consumer wants to pay $1.00 a month for web hosting... but they then forget the old adage that -generally- you get you what you pay for.

    If hosts would stop pricing things at $2.00 per year and other such ludicrous 'deals' we would all be better off. To even make something remotely closely to profit off plans like this, there would need to be some serious overselling, and it goes back to the adage.

    It's disconcerting because the cost of entry is so low with web hosting (reseller accounts for $5.00...), that there really is no end to the amount of unsustainable offers. It's not like those of us with a somewhat practical business sense can wait it out while the bargain hosts slowly fall off the map due to lack of income, so the big question is, as far as online marketing, how does one compete?

    Thanks!
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  2. #2
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    Develop a niche, and build yourself on reputation (e.g. network uptime, download speeds, etc.). I would also suggest always remaining professional in everything you write, which will distance you from a number of the smaller hosts.

    -mike
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  3. #3
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    Mike's spot on - provide better service. That's really it.

  4. #4
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    Quote Originally Posted by Mike - Limestone View Post
    Develop a niche, and build yourself on reputation (e.g. network uptime, download speeds, etc.). I would also suggest always remaining professional in everything you write, which will distance you from a number of the smaller hosts.

    -mike
    Thanks Mike, I'll take that into consideration.

    Regards,
    Tony
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  5. #5
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    With the really cheap hosting competitors is it possible they're cross-selling (not necessarily overselling) other services? The price could be used to bring in the customer, build up a relationship, then sell other services to them (that end up covering the hosting as well).
    John Rasri
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  6. #6
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    Quote Originally Posted by gotlivechat View Post
    With the really cheap hosting competitors is it possible they're cross-selling (not necessarily overselling) other services? The price could be used to bring in the customer, build up a relationship, then sell other services to them (that end up covering the hosting as well).
    I've been paying attention to the hosting business for quite awhile... and I've seen some companies try to cross-sell & upsell services... generally though it doesn't work very well (2ip.com).

    Regards,
    Tony
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  7. #7
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    What doesn't work with cross/up -selling... that customers looking for cheap hosting don't want/need any extras? Or that there's not really that much of a market for additional services (on top of hosting with ANY customer)?
    John Rasri
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  8. #8
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    What I don't understand is when hosts start out web hosting they sell their hosting prices for dirt cheap. With all the expenses of starting up, advertising fees, etc I don't know how they can afford it starting up. . . Anyone?

  9. #9
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    I think we can all agree that though a webhost may have a 5.00 reseller plan, and it may be from a company that will survive, and that webhost may survive. The differences in terms of support and service are night and day when compared to a host that actually charges for the services they provide.

    The "problem" is that the vast majority of people are just putting up a blog that only a few people will see, or a family website that only relatives will see, small networks, and static sites. These people once initially setup require very little in terms of support, service, and scalability.

    When/If those people go through a webhost going down, or suddenly require service and get to a point where they break the threshold of, "maybe thats just the way things work" and search for something else through trial and error they will come to a host that provides good service & support and smacks them in the head with, "Well you really do get what you pay for"

    Many people will never get to that point. There is nothing wrong with it, its just the way it is. Setting yourself apart, and charging a fair rate for a fair level of service is the way. After time word of mouth will travel, your history will build on itself and things will become easier. Generally you will not see the influx of accounts that a 1.00 hoster might see, but you will be around much longer, and/or be able to provide a much better service to your clientele.

    This is the way it goes with any business sector. My two cents.

  10. #10
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    Quote Originally Posted by SHSSteve View Post
    I think we can all agree that though a webhost may have a 5.00 reseller plan, and it may be from a company that will survive, and that webhost may survive. The differences in terms of support and service are night and day when compared to a host that actually charges for the services they provide.

    The "problem" is that the vast majority of people are just putting up a blog that only a few people will see, or a family website that only relatives will see, small networks, and static sites. These people once initially setup require very little in terms of support, service, and scalability.

    When/If those people go through a webhost going down, or suddenly require service and get to a point where they break the threshold of, "maybe thats just the way things work" and search for something else through trial and error they will come to a host that provides good service & support and smacks them in the head with, "Well you really do get what you pay for"

    Many people will never get to that point. There is nothing wrong with it, its just the way it is. Setting yourself apart, and charging a fair rate for a fair level of service is the way. After time word of mouth will travel, your history will build on itself and things will become easier. Generally you will not see the influx of accounts that a 1.00 hoster might see, but you will be around much longer, and/or be able to provide a much better service to your clientele.

    This is the way it goes with any business sector. My two cents.
    Well said!!

  11. #11
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    Service. Service. Service. and did I mention service?

    Like others have said, find a niche that sets you apart. Our lowest cost shared hosting package starts at 9.99 a month. What sets us apart is the level of service that we provide our clients.
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  12. #12
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    Uptime for a start, I have found a place for support speeds.

    If you find something you can do better than them, then use it and do it.

  13. #13
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    What I don't understand is when hosts start out web hosting they sell their hosting prices for dirt cheap. With all the expenses of starting up, advertising fees, etc I don't know how they can afford it starting up. . . Anyone?
    Actually, if I would start a hosting company, I might try to offer really cheap hosting for a while (perhaps for a limited 1-2 years of hosting) and get a decent customer base that I can wow with great service, and in turn could repay me with word of mouth advertising. Of course, that would require a fair budget, which most new hosts just don't have. They must rely on overselling alone to float the boat, which is certainly quite risky.

  14. #14
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    Quote Originally Posted by PlusWebHost View Post
    I'm really surprised with the price elasticity of web hosting... Seems like the general consumer wants to pay $1.00 a month for web hosting... but they then forget the old adage that -generally- you get you what you pay for.

    If hosts would stop pricing things at $2.00 per year and other such ludicrous 'deals' we would all be better off. To even make something remotely closely to profit off plans like this, there would need to be some serious overselling, and it goes back to the adage.

    It's disconcerting because the cost of entry is so low with web hosting (reseller accounts for $5.00...), that there really is no end to the amount of unsustainable offers. It's not like those of us with a somewhat practical business sense can wait it out while the bargain hosts slowly fall off the map due to lack of income, so the big question is, as far as online marketing, how does one compete?

    Thanks!
    There are three main things to remember:
    1) You cannot wait for all of the unsustainable offers to go away, because more always pop up. One kiddie host fails and ten more take its place.
    2) People don't shop on price unless they think all other factors are equal. Uptime is always more important than price regardless of what end users might say. No matter how little somebody pays for hosting, they still expect the uptime to be awesome.
    3) There are lots of ways to differentiate your business from other hosts, and these factors will usually trump price, disk space, and bandwidth. If your business is just another "me too" style business, then you will be stuck in a never ending price war.

    If you want to learn more about becoming different, you should definitely buy the book called "Different: Escaping the Competitive Herd" by Youngme Moon. Amazon has it. That book does not talk directly about the web hosting industry, but it is required reading for anybody who wants to actually succeed in web hosting.

    I'll use my own NSLH business as an example of differentiation. We consistently deliver four nines of reliability in our one dollar per month service. We are able to do this because we own a private cloud located in a telco grade data center. We obviously would not have been profitable at the dollar price point if we had tried to do exactly the same thing as everybody else.

    What we did to compete at the dollar price point is remove the standard first level tech support from the business model. That allowed us enough cost savings that we were able to build a profit dollar hosting business model that is very reliable. But we obviously had to also target a niche of users that did not need hand holding from first level techs in order to do that. Amateur users avoid us because we don't devote resources to their beginner questions, and we are fine with that. Anyway, this is just one example of how to build a hosting company that is completely different from other hosting companies.

    You need to think about ways for your company to be truely different. No matter what you do, make sure your business can deliver excellent uptime and turn a profit. Beyond those two things, be as different as possible. Good luck with it.
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  15. #15
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    Cost of entry for web based businesses in general is much lower than in the offline world. That is a good thing. It means there is a more level playing field. You don't have to be rich to get started online.

    I think what hosting providers is focus on VPS and dedicated servers. Surely there are higher margins to be had in offering those services. Also specialised services like managed blog hosting.

  16. #16
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    Quote Originally Posted by NoSupportLinuxHostin View Post
    There are three main things to remember:
    1) You cannot wait for all of the unsustainable offers to go away, because more always pop up. One kiddie host fails and ten more take its place.
    2) People don't shop on price unless they think all other factors are equal. Uptime is always more important than price regardless of what end users might say. No matter how little somebody pays for hosting, they still expect the uptime to be awesome.
    3) There are lots of ways to differentiate your business from other hosts, and these factors will usually trump price, disk space, and bandwidth. If your business is just another "me too" style business, then you will be stuck in a never ending price war.

    If you want to learn more about becoming different, you should definitely buy the book called "Different: Escaping the Competitive Herd" by Youngme Moon. Amazon has it. That book does not talk directly about the web hosting industry, but it is required reading for anybody who wants to actually succeed in web hosting.

    I'll use my own NSLH business as an example of differentiation. We consistently deliver four nines of reliability in our one dollar per month service. We are able to do this because we own a private cloud located in a telco grade data center. We obviously would not have been profitable at the dollar price point if we had tried to do exactly the same thing as everybody else.

    What we did to compete at the dollar price point is remove the standard first level tech support from the business model. That allowed us enough cost savings that we were able to build a profit dollar hosting business model that is very reliable. But we obviously had to also target a niche of users that did not need hand holding from first level techs in order to do that. Amateur users avoid us because we don't devote resources to their beginner questions, and we are fine with that. Anyway, this is just one example of how to build a hosting company that is completely different from other hosting companies.

    You need to think about ways for your company to be truely different. No matter what you do, make sure your business can deliver excellent uptime and turn a profit. Beyond those two things, be as different as possible. Good luck with it.
    Yeah this is a great idea. This may be the future of shared hosting in general. Either that or the whole industry shifts to poorer countries like mine where labour is cheaper. But even here I have heard people complain about the low profits in shared hosting mainly because we don't have the volumes to offset the razor thin margins.

  17. #17
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    Don't go out to compete with the low priced hosts. Sure, that's one way to go and make money - and I applaud those that can do it.

    But - I'd rather spend the time with local businesses, build trust, offer a great service that no one can match.. keep clients for 5+ years because you're looking for the ones that value those types of things. Down the road sell them SEO, new site design, better server(s), watch and help their businesses to grow.

    It really comes down to what you're looking to get into.
    Last edited by kprojects; 02-08-2011 at 08:38 PM.

  18. #18
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    Stay away from cheap customers. Do more than just hosting!
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  19. #19

    * INNOVATION IS THE ANSWER

    It's really sad how flooded the reseller web hosting business has become. Mid-sized privately owned companies were and continue to be responsible for this change and economic backlash. Many mid sized companies could not compete with major players so they started engaging in false advertisment. They were desperate to survive so they began offering unlimited resources knowing full well it wasn't possible. Over time it only got worse because all the dreamers started buying into this illusion. What appeared to be a sound business venture has become a real nightmare for thousands of people who have lost all their clients in the blink of an eye.

    There is no such thing as unlimited resources. All systems have bottlenecks which prevent everyone from surpassing a certain threshold. This is determined by the cpu, ram and overall drive allocation. You also have limits set by software, ports and monthly bandwidth allowance. It's basically a game of numbers and false marketing tactics.

    An experienced service provider has a solid idea on server trends and overall client utilization. In the clients mind they believe they have unlimited resources but in reality the provider has mathematical statistics on their side. Out of twenty clients maybe three will use excessive resources. In time those three will have their account suspended, asked to upgrade or be kicked off the server. You kick out three and keep seventeen clients who don't impact the server. The house never loses. The only exception to this is if you are a sub reseller. In that case you are just a middle-man and your master account provider never loses even if your clients data is wiped out.

    This is why there are so many fly by night web hosting companies which shutdown as quickly as they opened. If you research a bit there are countless stories on investors whom lost everything. Why would a web hosting reseller allow you to make 30k a year while they only make $20 a month from you ? Does that make sense to you ?

    You don't want to try and compete against undercutters in this game. The only strategy that will work against undercutters is innovation. Offer free web hosting service and find something else you are talented in. By offering free web hosting you will discourage undercutting and flush out all the wannabes out of the business who are not skilled enough to offer more advanced services. It's time for the real techs, programmers and business innovators to take back control. Standard web hosting continues to be devalued and the only way to overcome this is replacing it with something new.

  20. #20
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    This is actually a very simple - just don't.
    Provide a good service and stop worrying what everyone else is charging. Some people will have sense enough not the sign up for $2/year hosting. The one's that do sign up for $2/year hosting will get burned and learn their lesson and then be happy to pay more.
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  21. #21
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    Quote Originally Posted by NoSupportLinuxHostin View Post
    Amateur users avoid us because we don't devote resources to their beginner questions, and we are fine with that.
    I already checked your website and mentioning the word amateur makes me think...How do you qualify amateur or what is your definition of amateur?

    Aside from not listing all your service features (or maybe I cannot find them) then are you simply saying that the one who will subscribe to your company will simply accept whatever you have without asking a level 1 question?
    Ask for Server IP & Nameservers IP to check if your reseller provider truly provides 100% white-label.

  22. #22
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    Quote Originally Posted by hangingout View Post
    ... The house never loses. The only exception to this is if you are a sub reseller. In that case you are just a middle-man and your master account provider never loses even if your clients data is wiped out.
    ...
    Interesting reference to the term "house", as the hosting business can be a gamble for customers. And since there doesn't appear to be any type of official web-hosting-business-over-sight, it makes it easy to enter/exit the business.
    What I would think would be interesting information, and possibly a good way to see a web hosts viability (in terms of a prospective customer), is a list of all web hosting providers and their verified years-in-business. Does such data exist?
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