Web Hosting Talk : Web Hosting Main Forums : VPS Hosting : Profitable?

[Corey Bryant]

Do you think VPS is profitable?

I have read horror stories about hosting companies not being honest with the consumer and reselling VPS to more than what they say. Do a lot of of consumers think this is right?

Would you be afraid of what others might install or do to the server if they have the "power"?

[rbayless]

Originally posted by coreybryant
I have read horror stories about hosting companies not being honest with the consumer and reselling VPS to more than what they say. Do a lot of of consumers think this is right?

Theres no difference between VPS and shared hosting regarding this.. There will always be shady web hosting companies out there.

Richard

[dollar]

If you are talking about overselling I believe this is common (it's a question of ethics on if it is right or not) but I also think it is needed to stay competative. It is common fact that most people do not utalize the full plan that they purchase and therefor a small amount of overselling must take place. It is the provider's responsibility to monitor their overselling and upgrade the machine as needed to handle it when the time comes. A little bit of well calculated overselling is acceptable, squeezing every penny you can out of a machine until it blows up is horrible and should be avoided at all costs.

[JohnCrowley]

We have looked at VPS solutions in depth, and have made the decision to not offer them. We offer standard shared hosting and then managed servers for higher usage clients. We cater to the SME/B market, and this two tier system serves us well.

VPS is a great idea in theory, and some hosts can pull it off as a great idea in reality, but issues with overselling, making each VPS account profitable while stable, and actual performance for higher usage accounts have made us choose not to offer it as a solution.

If your clientele are very tech savvy, and highly cost conscious, and use lots of resources, VPS may be a way to keep them long term. For us, business clients want their acount to work, and shared hosting fits the bill nicely. For those that do more with their sites, making the jump to a managed server works well for their situations.

- John C.

[rghf]

The "problem" with VPS accounts we've found is support. You have to realise that for each VPS you get the same load almost as a managed dedicated server setup so this will tax the support system. We worked on it by just bringing in more staff which has helped a lot. Unmanaged however is (by definition) a lot easier

Rus

[dkitchen]

Originally posted by vaserv
The "problem" with VPS accounts we've found is support. You have to realise that for each VPS you get the same load almost as a managed dedicated server setup so this will tax the support system. We worked on it by just bringing in more staff which has helped a lot. Unmanaged however is (by definition) a lot easier

Rus

But then you get people signing up for unmanaged, and still demand tons of support, and being the kind of person that I am, I end up spending all my time helping them with something that's really not included in the price.

IMO there's not much profit here, the profit still lies in the shared/reseller markets.

Dan

[rbayless]

Originally posted by RazorBlue - Dan
But then you get people signing up for unmanaged, and still demand tons of support, and being the kind of person that I am, I end up spending all my time helping them with something that's really not included in the price.

You left out the part about the "and if you don't provide them support on your unmanaged product they gripe to others, especially on WHT, about the lack of support from your company" ..

Richard

[BurstNET]

VPS have their place in the market. They are a step above virtual hosting, and a step below dedicated servers. They are absolutely perfect for someone wanting to learn how to operate a dedicated server, without spending alot of money to do so. How can you beat one-click operating system clean restore? Thy are also sufficient for a site owner that wants more control than he currently has thru virtual hosting. VPS really do fill a long-time gap in the industry, and are proving to be quite a hot product.

[sshepherd]

VPS's are a great product for getting higher utilizatition of a server = more profit, better management of a server, and filling a void for customers between shared and dedicated.

I do agree that I feel support could really nip you as you get less experienced shared class of customers choosing VPS's, or budget concious users going with VPS's and expecting full managed service for all the software/changes available to it. At least one benefit however is that they are isolated from each other.

As for overselling you're going to see some companies exploiting this by not disclosing real figures for the hardware, and hard limits on the VPS such as max VPS's, memory, cpu (Although for marketing reasons some of this often isn't disclosed since it's not very impressive to the average buyer). They can then go and oversell the physical server by 300 times if they want to and the customer wouldn't know unless they ran benchmarks at the root, or saw a degradation of performance.

However to an experienced shared hosting user with higher requirements I'd wholeheartedly recommend a VPS as long as it was with a reputable company.

[varg]

Corey,

Anything has the potential to be profitable. You've just got to find your market and market your product. I looked at offering VPS solutions about 3 years ago and wish I had now, because now it seems everyone is offering them and we could've been one of "the first". It also depends which software you're going to use (UML or Virtuozzo?) As with any business idea, you need to write out a plan and calculate your margins. If you're going to provide unmanaged VPS plans then yes they have the potential to be profitable. It just depends who you're going to market your services to and for what reason. Are they going to be gaming VPSs? VPSs for a designer that wants more control than a reseller account gives him? It really just depends. Most unmanaged VPS plans are in the $25-$40/mo range and then you have competition in the dedicated server market offering lower end dedicated servers for $60-$70 with much more bandwidth and much more power. So, as with anything you need to analyze your market and write up a business plan.

[BeDifferentSolutions]

Originally posted by coreybryant
Do you think VPS is profitable?

Not the way most the new comers to this service offering are doing it. They are taking the same approach they do to shared hosting. Gross overselling and low ball pricing. With shared you can do that and get away with it. With a VPS you cannot. At least not long term. I have seen so many VPS host fail over the years because of this. We offer $40 VPSs. I can tell you at best we break even on those and that is now that we have hundreds of VPS customers. We have made ourselves as lean as possible to try and pull any profit from $40 VPSs -without cutting corners. Those selling for less are losing money in my opinion and that is why most quality VPS host have $40 - $50 as the baseline. Anyone can do the math. Unlike shared where you can oversell 10 or 100 fold if you want, you are unable to with the vps software out there now. You simply can't load 100 VPSs on a box and run a control panel on top of it. You must limit to the 20 - 30 VPSs per beefed up box.

Here are some cost. Of course it might vary from provider to provider, but the bottom line is that it is real close. No one provider is getting special free alien technology to get a server that cost $6000 for only $500 for example.

1) Server cost. With the rapid rise of competition in the VPS arena lead to large space, bandwidth and RAM allotments to be given. To support those you must max out your boxes with current technology. RAID drive to give up to 1 TB of storage, 8 GBs of RAM, etc.. These boxes are large, power sucking, space using machines. You don't get them for the cheap shared server box pricing.

2) Software cost. Lets use Virtuozzo (as the majority use it now). You are paying anywhere from $4 - $7/VPS. I am sure ev1 gets them for less (maybe $3.00? ), but I know for a fact the majority of large VPS host fail into that range I stated. Control Panel cost. cPanel, DA, Plesk. All are going to run you $4 - $8/VPS. If you are putting Virtuozzo and a CP on for $8.0/VPS, you re doing VERY well. I doubt many come close to this.

3) Bandwidth. Shared is easy. No one uses it. Mom and pop shops. VPSs? They use much more then you could imagine if you are use to calculating shared overselling rates to guess your bandwidth use. People who buy VPSs are needing a larger solution to host busier sites and don't want to pay to jump to full dedicated. The point is, don't think if someone buys a VPS, they will only use 50 MBs of traffic.

4) As stated a few times. SUPPORT! Get use to a large increase in support load. And these tickets are not "How do I check my e-mail". It is "I was 'tweaking' the http conf and now my sites stopped working" tickets. Meaning, the responses can't be canned and many require the attention of someone who has greater knowledge to offer support. That means higher priced techs doing a lot of tickets. I know ev1 offers unmanaged. But I laugh when I think what tickets they still must get. Because unmanaged doesn't mean to a customer if something doesn't work, that is not their fault and they should have to fix it themselves. A customer doesn't understand that. So unmanaged becomes 'semi'managed. When we had about 100 Virtuozzo VPSs we thought things were great. But after doubling, tripling, etc... those numbers, support really becomes an Achilles heal. Margins are small to start with on VPSs. Hiring more support reps able to handle VPSs tickets cost more and more. Also, VPS customers are MUCH more demanding and less understanding and appreciative. Mainly because they themselves are using a VPS to oversell shared hosting.


My company has taken a conscious acceptance of breaking even or losing a few bucks per VPS in order to gain a client base. But we are able to easily make it up on the shared or managed deds we sell. A new VPS host can't do this. I certainly am not trying to be all doom and gloom. I wouldn't be selling them if I thought it wasn't worth it. But I want to make clear that the bottom line for shared is much more gray then it is with a VPS. And only time will prove this. Do you think VPS is profitable? . It isn't the pot of gold at the end of the rainbow so many think it is.



In closing, let me ask a question. How is it possible to sell out of VPSs? I see many providers stating "Sold Out" for VPSs. How is that possible? When you think deep enough about it you know what "Sold Out" really means.....

[BeDifferentSolutions]

Originally posted by BurstNET
VPS have their place in the market. They are a step above virtual hosting, and a step below dedicated servers. They are absolutely perfect for someone wanting to learn how to operate a dedicated server, without spending alot of money to do so. How can you beat one-click operating system clean restore? Thy are also sufficient for a site owner that wants more control than he currently has thru virtual hosting. VPS really do fill a long-time gap in the industry, and are proving to be quite a hot product.

Sean, before I reply to the post, understand I have always been impressed with your growth and what you have turned Burst into.

The question was "Do you think VPS is profitable? ". Your post makes it seem like this technology is new. We have been offering VPSs since we were one of the first adapters of the Ensim ServerXchange in 2000. Over 4 years ago. So the debate was settled long ago whether or not "VPS have their place in the market. ". Of course they do. I know you are new to selling VPSs, but understand these debates have long been finished and this certainly isn't some new technology. What is new is the volume of new VPS host or old shared host offering VPS to the line up. Maybe that is why your post seems to reflect it is still in debate whether a VPS has a market.


The question is "Do you think VPS is profitable? ". Lets take your Windows VPS pricing.

VPS PACKAGE #1
CPU: 200MHZ GUARANTEED + BURSTABLE
Memory: 128MB GUARANTEED + BURSTABLE
Disk Space: 3GB (RAID BASED CONFIG)
Bandwidth: 100GB/MONTH
IP Addresses: 5
Management: BASIC MANAGED
$9.95/SETUP $19.95/MONTH
ADD Windows for $$14.95/MONTH

This Windows VPS would be $34.90/mo. Right?

Lets consider what I stated in my post above in this thread. Those cost were for Linux. Now lets add the "Windows overhead".

1) Our Virtuozzo rep stated in an e-mail that Virtuozzo doesn't recommend more the 30 VPS per node on the Windows platform. My rep said plan on 20.

2) Microsoft's cost. This is from Virtuozzo and Microsoft as requirements.
-----------------------------
1 server running 2003 Enterprise Dual Proc server, with VZWIN and 30 VE license. To be able to provide each user the ability to have 2 RDP sessions to their VPS requires 60 SAL TS licenses per month, and 2x $194 SPLA Authenticated fee's for 2003 server enterprise.

$194 Proc 1 Fee for Auth 2003 Enterprise.
$194 Proc 2 Fee for Auth 2003 Enterprise.
$210 SAL TS Fee for 60 TS for 1 server, NOT POOLED.

Total $604/month under the SPLA VLK Web Hosters Provider Program for ONE SERVER.
-----------------------------

Unless I am grossly mislead, which if I am I will apologize, I think you need 18 of those Win VPSs just to pay for the Microsoft fees alone. This doesn't even count all the other stuff I listed in my other post.


I know Burst to be an industry leader and an honest company. So I have no doubt you are paying Microsoft their fees. Only thieves as host would offer Windows offerings and not pay their fees. Hmmmm. Doesn't CIHost have a law suit regarding this now.

So in my conclusion, no it isn't profitable in terms of what I call profit. If seems you are willing to take a loss also. Of course 'upsell' and many upgrade to larger plans adds more profit, but we all know the majority of the plans sold are the entry level ones. And most stay at those plans.

Again, this isn't an attack on you or Burst, simply one mans guess at profitability into your pricing of Windows. Feel free to venture a guess into mine.

[TheWiseOne]

Originally posted by UmBillyCord
4) As stated a few times. SUPPORT! Get use to a large increase in support load. And these tickets are not "How do I check my e-mail". It is "I was 'tweaking' the http conf and now my sites stopped working" tickets. Meaning, the responses can't be canned and many require the attention of someone who has greater knowledge to offer support. That means higher priced techs doing a lot of tickets. I know ev1 offers unmanaged. But I laugh when I think what tickets they still must get. Because unmanaged doesn't mean to a customer if something doesn't work, that is not their fault and they should have to fix it themselves. A customer doesn't understand that. So unmanaged becomes 'semi'managed. When we had about 100 Virtuozzo VPSs we thought things were great. But after doubling, tripling, etc... those numbers, support really becomes an Achilles heal. Margins are small to start with on VPSs. Hiring more support reps able to handle VPSs tickets cost more and more. Also, VPS customers are MUCH more demanding and less understanding and appreciative. Mainly because they themselves are using a VPS to oversell shared hosting.

I agree. Support is something that really needs to be controlled. We have many customers who sign up and don't realize what they are getting into. We send them the root login information and they write in saying they don't care about that, they just want the username and password to upload their site. I don't know if maybe it's a problem with us not properly laying out what is required, but it sure does happen a lot Out of these some learn how to administer their server with our help or they realize they are in over their head and cancel.

What else that happens is that customers will automatically assume that the provider is responsible for making sure their server runs fine, not that they are responsible for administering it. An example would be if Apache crashes in a VPS, the chances are good when it goes down the customer will write in asking you why their Apache failed and what you are going to do to fix it.

You must be prepared to handle these types of situations...

[WH-Coach]

This exact problem is why we dropped our low-end vps units. The price was supposed to be low enough to encourage reselling of the units but the unexpected happened and we got the price low enough that we were competing with high-end hosting accounts - something we didn't want to get into. Our bottom-end product is now high enough priced that it's comparable to a reseller account and we're getting customers better suited to what we are trying to offer.

[JohnCrowley]

Originally posted by UmBillyCord
So in my conclusion, no it isn't profitable in terms of what I call profit. If seems you are willing to take a loss also. Of course 'upsell' and many upgrade to larger plans adds more profit, but we all know the majority of the plans sold are the entry level ones. And most stay at those plans.

Bill, thanks for an in depth look into the world of VPS. We flirted with it a few years ago and realized quickly it was not worth the increase in support issues, decreased profit per server, and a clientele that is "more demanding" or "more dangerous" because of their new found freedom.

I'm sure we are missing out on a segment of the market, but we tend to focus on more of a niche market and philosophy, becoming experts in a few select areas to outshine the rest. Shared hosting and full managed hosting is where we excel, and the profit margins here are quite good.

I look at companies like Burst or Servint that had a successfull dedicated and managed server line, and it makes me wonder why they add VPS's into the mix at such a low price. I do the math like you, see the stellar support from a company like Servint, and wonder how adding 1000's of VPS at rock bottom prices can help maintain a tight knit, top notch support system like they have now.

We'll see how it plays out in the mass market over the next 12-18 months and see if VPS offerings can truly be the profit machines some think they are. I know the demand is there from clients, but like you said, trying to become a pure play competitive VPS host now does not look like a fun ride.

- John C.