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  1. #1
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    Industry Contraction

    Looking at the mergers and acquisitions occurring at the moment. EIG in particular and this all looks like the sort of thing that occurs when their is a contraction in the industry.

    Their simply is not enough business to go around so some players have to be removed - these end up being gobbled up by the big guys.

    The interesting thing is that usually when the merger and acquisition thing becomes noticeable it means we are near a bottom.

    What are you guys seeing on the ground? - is there still growth in the number of people buying hosting or are we a long way past the stage of people getting their first web site and in fact lots of people are not renewing.

  2. #2
    Quite a broad subject, I expect some interesting opinions here

    I do believe that the demand for hosting has not diminished. Online usage might not be leaping like a few years back, but as technologies improve, so do customers. Sure, many people have passed the phase of "their first website" but nowadays many people prefer not to be limited in just one site. The thing is that, with so many players on the market and strong competition in prices, companies have been forced to constantly improve services in order to gain even the slightest attention. People have lots of options for "money-back" or "first-month-free" deals, so its common logic to simply try many companies until you find the one closest to your needs. So there is a constant flow of host-hoppers and companies have to do more to satisfy them.

    Apart from the freedom and ease to handle many projects at once, another trend is the mobile usage. People grow more and more attached to their mobile devices and the demand for mobile-optimized websites have increased. Couple of years from now, who knows? Web Hosting, as any other computer-related business, has the ground to evolve and while it has those capabilities there will be innovations that will keep the clients' attention
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  3. #3
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    Interesting topic. Thanks for starting it.

    The thing is, EIG have been acquiring smaller hosts for several years, so if you're theory is right it's a fairly longstanding contraction.

    My observation is that demand and supply for hosting are both expanding. However, supply has expanded faster than demand. There are therefore more hosting providers than the needs require, but it's because of an unbalanced expansion in the industry rather than a contraction.
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  4. #4
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    When I did a search for Web Hosting queries over on google trends you can see a decline in the number of queries for Web Hosting going back to 2005.

  5. #5
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    Quote Originally Posted by OakHosting_James View Post
    Interesting topic. Thanks for starting it.

    The thing is, EIG have been acquiring smaller hosts for several years, so if you're theory is right it's a fairly longstanding contraction.

    My observation is that demand and supply for hosting are both expanding. However, supply has expanded faster than demand. There are therefore more hosting providers than the needs require, but it's because of an unbalanced expansion in the industry rather than a contraction.
    I second this opinion.

    Hosting is an industry where there are generally little barriers to entry. Of course one could argue this depends on the different sections such as whether the product in question is a Shared Hosting Account or a Dedicated Server, however some hosts in differentiating themselves from the rest have made managing all these products easier by providing the know-hows for their clients directly - think "end-user support" or "fully managed".

    If there are going to be little barriers to entry, there will be a huge influx of "business setups" especially when the industry has huge prospects. I have often seen criticisms that a provider is a "kiddish-host" because of the inexperiences and the responses given; I am pretty sure there are plenty of hosts ran by non-adults out there - my pointing out of this is not to look down on non-adults, I do respect the entrepreneur spirit, however I am also pointing out that it is very easy to enter the industry given that a non-adult usually does not have much savings or a sustainable source of income.

    Website hosting is a unique product whereby the capacity of its supply may not have increased in reality, however it may appear that the supply has increased. Think of a provider with a dedicated server offering shared and reseller hosting, its end-users can also provide shared hosting. To a third party, it would appear that the industry has expanded when there is in fact only one server being utilised.
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  6. #6
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    This is a very interesting topic.

    In terms of kiddie hosts...I agree that one can become a "host" for about $200 a year. My prior business...$200...no point even trying, unless your investing in yourself for some years. It does become disheartening...someone who just found a reseller account thinking they're more knowledgeable and in the same playing field as someone with 20 years of experience.


    Quote Originally Posted by Cryptonomicon View Post
    What are you guys seeing on the ground? - is there still growth in the number of people buying hosting or are we a long way past the stage of people getting their first web site and in fact lots of people are not renewing.

    I believe there's still a wave of 1st timer site owners coming in. People who;

    - are starting a second career
    - created a supplemental income stream
    - been doing it the old school way and need to go online to continue...some that have been in business 5,10, 15 years and need to compete.

    I still see people renewing. Only seen one case where the owner retired and didn't renew, but in this case the business was sold to someone, so it doesn't count.



    But as anything, everything goes hand in hand. As RadioCh mentioned, as the industry pushes towards mobile, other industries like print are starting to decline and have past their high point.

  7. #7
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    This isn't the definition of a "contraction". What that entails is overpriced M&A, as the earlier deals were the best buys. Sometimes, M&A is like falling dominoes in the industry, and you get a lot of "me too".

    Hosting is more interesting. EIG overpaid $225 for HG, as you can see in their SEC filings from the IPO. Excluding that one stupid deal, I don't think we're their yet. The Godaddy acquisition of Media Temple didn't seem overvalued to me. That was a smart purchase. I think there's many more to be had.

    Kiddies/amateurs in this industry are just noise. They fail and new ones pop up daily. But the lifespan is the same. If anything, it's the kiddie hosts, and big $hitty hosts like EIG, that enable the churn needed for the market. Hosting is still in its infancy, and it's only been around for 20 years, under 10 mainstream.
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  8. #8
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    When people actually come to their senses and see that Unlimited and SEO Hosting are gimmicks, they then finally look for a real host, a host who looks after them and gives two F***s about customers and providing the best service they can... That's when the businesses on the ground actually get a chance to show what they are made of.

    At the moment, people are like.. "I can get a Dedicated IP for myself to improve my SEO, and get advert revenue" or "I can get unlimited space for $x.xx when if I went over there with that host I'd pay $xx.xx a year for less" And stroll over to a EIG Brand or another big company. Then when they hit the brick wall, they realise that there is no such thing and the "What you pay for" comes in.

    Because of that, there is always room in the hosting market, however it's not a "Pay $xx.xx for this and that and I can make x10 in profit" business, and that's where people hit the wall and give up, it doesn't effect them and their customers are lost. No backups, No contact and have to look again.

    However people who care about their customers, will either sell them off to a bigger or stable business or give them for free, knowing they are in safe hands.

  9. #9
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    Quote Originally Posted by CW Mike View Post
    Because of that, there is always room in the hosting market, however it's not a "Pay $xx.xx for this and that and I can make x10 in profit" business, and that's where people hit the wall and give up, it doesn't effect them and their customers are lost. No backups, No contact and have to look again.
    Very well said.

    This is a topic that seems to come up a lot on WHT, and it's really the same answer every time: the industry is what you make of it.

    Go back fifteen years and tell the world that you're going to start a craft brewing company to take on Budweiser, Coors, Miller, etc. You'd get laughed at. Some condescending "business expert" would talk down to you and explain that there's no way you could even hope to touch their pricing, distribution channels, or market share. But fast forward to today and the craft brewing movement that's in full effect: craft brews are better, generally more expensive, and lack the distribution channels of their larger megacompetitors. Not only are the micros thriving, but the big names -- the price leaders with unstoppable distribution channels and unsinkable market shares -- are rapidly losing ground.

    So if you're a generic host with nothing to offer and nothing to differentiate yourself from the 5897427589 other identical hosts out there, yes: you've got problems ahead. You are going to see (and probably fall victim to) a shrinking market. Sooner or later you will be put out of business by GoDaddy or EIG simply because they're offering the same product as you at a cut-rate price.

    How does this apply to hosting and a market contraction? I don't think that the market or industry is shrinking. I think there's a supply glut. Sure there are buyouts and mergers; there are also new companies springing up every day. Even without the fly-by-night kiddy hosts, there are still plenty of respectable providers with strong financials entering the market every day. If we drop from 10,000 hosts to 8,000 hosts, that's a 20% decrease -- but will it really matter to the average consumer or average host? No.

    The moral of the story is that you can't be Anheuser Busch. Be something special. Don't just claim to have awesome support or enterprise-class this or tier II that. Take yourself out of the mainstream hosting game and go after a niche segment so that the state of GoDaddy / EIG / et al doesn't really impact you at all.
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  10. #10
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    Quote Originally Posted by CW Mike View Post
    However people who care about their customers, will either sell them off to a bigger or stable business or give them for free, knowing they are in safe hands.
    Quote Originally Posted by FRH Lisa View Post
    The moral of the story is that you can't be Anheuser Busch. Be something special. Don't just claim to have awesome support or enterprise-class this or tier II that. Take yourself out of the mainstream hosting game and go after a niche segment so that the state of GoDaddy / EIG / et al doesn't really impact you at all.

    Ah, in the perfect world of common sense.

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