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  1. #1
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    Question Do you oversell your bandwidth?

    I meant to add a poll, but if you do, please explain your pricing model. What would you do if you grew too fast?
    Devon Dunham (Owner, Sharpnet/DDoS Host)
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  2. #2
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    Nope
    dotGig
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  3. #3
    Anybody that says that they aren't overselling is either selling themselves short or doesn't understand what overselling is.

    It is a generally acceptable business practice for ISP's to oversell resources. Telephone and backbone companies do it all the time.

    It's based on the fact that not everyone will be using the resources at the same time and some use very little resources altogether.

    In many cases, it is the only way to turn a profit as a hosting company and attract new customers.

    I think you'll find, however, that very few hosting companies will actually admit to the practice. It has become a dirty word because of those companies that don't do controlled overselling. Some companies have not managed their resources well enough to keep performance up while overselling.

    We do some overselling. We also have huge amounts of extra capacity on tap if there is a sudden bum rush on all of our customer's data transfer quotas (hasn't happened in our 4+ years of doing hosting).

    BTW, we wouldn't grow too fast. No well managed company should ever run into that problem. We use higher pricing to slow down demand if our accounts are selling faster than we can build out our network to handle the demand. If we can't slow down demand with higher pricing, ooh, that would be a wonderful problem to have!
    Sincerely,
    Andrew Kinney
    CTO, Advantagecom Networks
    http://www.SimplyWebHosting.com

  4. #4
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    I am neither selling myself short, nor have a problem understanding what overselling is. Apparently the marketing hype, and the frustration from competing with "Nowhere going" hosts has you a bit confused, but your points are clear and I like that.
    dotGig
    <:<: [Fruit eating linux administrator]

  5. #5
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    *scratches head*...

    I've never had to oversell before....


    I concur with Samuel's comments .
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  6. #6
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    Short answer no, then again maybe I don't make as much per server as others but I am happy.

  7. #7
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    Originally posted by advantagecom
    It is a generally acceptable business practice for ISP's to oversell resources.
    Of course, and in a lot of cases it makes sense. Say you ran a dialup ISP, and you had 100 customers dialing in to your modems. Would you need 100 modems? Not even close.

    In hosting, how workable it is depends on what you mean by "bandwidth," and by "overselling bandwidth." Since people here tend to use the term "bandwidth" when they really mean something else, the key is how the host is set up with their upstream providers. If HypotheticalHost leases or colocates a server, they might have a traffic allowance set at, say 100 gigs/month. So if they have 100 customers and allow them each 2 gigs, are they overselling? On paper, yes, but does it matter? If for some reason in a given month all of those customers ended up using 150 gigs, HypotheticalHost has to pay their provider for the overage. As long as they have that covered in their business plan (perhaps some of the cost is passed on to a number of customers who went over their 2-gig allotment; or perhaps they're just making enough money to pay it anyway; or perhaps they eat a loss that month) there are no real concerns to the customer (short of the ongoing stability of the hosting company, but that's a bigger discussion).

    But if you really do mean "bandwidth," and not a transfer allowance, it's a different situation. If a host is promising their customers the ability to burst at a rate that they can't really provide, they're misleading their customers about the quality of the service they'll be getting.
    Last edited by JayC; 09-23-2002 at 01:58 AM.
    Specializing in SEO and PPC management.

  8. #8
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    Originally posted by Monte
    Short answer no, then again maybe I don't make as much per server as others but I am happy.
    *Monte the Sage stumbles upon one of life's little secrets*
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  9. #9
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    That wouldnt be to smart..

  10. #10
    Did you know that airlines routinely over-book?
    What is unacceptable is if the service provider does not accept responsibility for still providing the service promised in the atypical event that the customer uses it in full.

    In the case of airlines, they 'bump' the passenger... not neccessarily a bad thing if your schedule is flexible.

  11. #11
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    Hmm, thought I replied to this thread before

  12. #12
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    I agree with JayC. It's all about how you define overselling.

    It makes no sense to sell 500GB of data transfer and purchase 500GB of data transfer from your upstream (unless most of the 500 are being used of course). If your customers are using 100GB or less, just purchase 100GB and use the money you would have spent on the 400GB for other things like staff, upgrades, improvements, etc. When your customers start pushing close to 100GB, purchase another 100GB and use the remaining revenue towards improving the business.

    I would call that one way of overselling.

    However, my definition of overselling is when you sell 500GB of data transfer and you only have 100GB from your upstream. Your customers then start pushing past 100GB and you can't afford to pay for more. Your upstream starts demanding money from you to pay for the additional traffic but you can't put out. Your upstream then disconnects you until you can pay. Your customers start wondering what's going on and usually head to another host.

    To me, that's what I call overselling. And based upon that definition, we don't oversell.
    Alex Llera
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  13. #13
    I realize that many people enter this industry from different backgrounds. Some enter as webmasters, some enter as experienced unix sysadmins and some just enter as clueless...but that's another story. However, I entered as a network designer. I have been designing networks for 10+ years. Overselling for ISP's and corporations is a very common practice.

    When designing corporate frame relay networks, the typical oversubscription rate was about 5-10 to 1. Meaning that for each T1 coming into a corporate data center at 1.5M, there would represent approximately 7.5M to 15M of connections at the other end.

    From a fiscal responsibility standpoint it is irresponsible to not maximize the profit available on a connection.

    The extent to which a host oversells is only relevent to their customers at the point where it effects the customer, either in performance or in fiscal instability.
    *AlphaOmegaHosting.Com* - Hosting since 1998
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  14. #14
    Greetings:

    "It is a generally acceptable business practice for ISP's to oversell resources."

    I think you mean CHEAP companies have this business practice.

    I know of a large number of solid providers who do not engage in this unethical activity.

    I know a lot of CHEAP providers that do.

    Unless you have a statistical source to backup your statements, please don't post what you believe to be industry standards that are not!

    Thank you.

  15. #15
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    Originally posted by dynamicnet
    I know of a large number of solid providers who do not engage in this unethical activity.
    Name them.
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  16. #16
    I know of a large number of solid providers who do not engage in this unethical activity.
    Now its suddenly unethical to turn a profit. Fancy that. There are a lot of philanthropic hosts around these days (aka not for profit). Our company isn't one of them. Just because a company doesn't have a philanthropic business plan doesn't make that company or its practices unethical.

    What I'm seeing here is a bunch of resellers that don't oversell the bandwidth they are sold. I can guarantee that the bandwidth the resellers are buying is over-subscribed, or to put it in politically correct terms - statistically multiplexed.

    There was a valid point raised earlier in the thread about the word "bandwidth" being misused. It is easy to oversell bandwidth and maintain very good performance, but very tricky to oversell data transfer, especially if your data transfer is hard capped.

    Also, I think oversubscribe is a better term than oversell. It has less negative emotions ascribe to it for the moment.

    *
    *

    I think it is also highly relevant to point out that the end-users, the people who actually buy the services, are what drive oversubscription. They *demand* it. They may not come right out and say it, but they demand it by way of pricing expectations. Their pricing expectations are low to the point that the only way for a company to gain any significant market share is to oversell in a controlled and sane manner.

    I think this is a good healthy discussion. Maybe it will raise awareness that there is no such thing as bandwidth that isn't oversold (no matter what line of bull some backbone provider may try to feed you ).
    Sincerely,
    Andrew Kinney
    CTO, Advantagecom Networks
    http://www.SimplyWebHosting.com

  17. #17
    Greetings:

    If one can read in context, then it is unethical to oversell ;-)

    In terms of naming, name sources for your so called industry standards.

  18. #18
    I just thought I'd briefly mention that some of our plans have oversold bandwidth and some of them don't. I don't want anyone to get any misconceptions that we oversell on all accounts.

    We have hardware in place to manage our bandwidth as a different "pool" for each type of service we offer. We can also prioritize traffic effectively. This effectively allows customers to determine what quality of bandwidth they want to buy into by choosing a plan to meet their needs.

    Regarding your insistence that I cite my sources for this "industry standard", it isn't an industry standard like Ethernet or TCP/IP because it has no governing standards organization.

    It is, however, a widely known fact that if every phone in New York tried to get a dial tone all at the same time, a large chunk wouldn't get a dial tone.

    The same goes for the Internet. If every Internet access subscriber tried to download at full speed all at the same time, routers would crash, backbone companies would fold, and servers would go down.

    We're talking common knowledge here. Every Tier 1 backbone provider on the planet sells to hosting companies that oversell bandwidth. So, it stands to reason that every backbone on the planet is oversold. It really is that simple.

    Oversubscription is a basic principle on the Internet. Cite my sources? Bah!
    Sincerely,
    Andrew Kinney
    CTO, Advantagecom Networks
    http://www.SimplyWebHosting.com

  19. #19
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    Originally posted by dynamicnet
    Greetings:

    If one can read in context, then it is unethical to oversell ;-)

    In terms of naming, name sources for your so called industry standards.
    So you can't/won't name these large companies who don't oversell?? If not, then you know where the edit button is.
    AussieHost.com Aussie Bob, host since 2001
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  20. #20
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    Overselling a commodity that you know with a high statistical confidence that consumers will not consume makes sense.

    Especially more so when there is an easy contingency to provide additional bandwidth should there be a run on the bank. A run on the bank that would statistically happen every 10,000 years or so.

    Most consumers have no clue how much bandwidth they need or will use - and make decisions based off higher numbers looking better.

    So long as you can always provide the service that you sell - internal capacity management is not at all unethical & it is not lying to the customer at all.
    Andrew McMaster
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  21. #21
    Overselling a commodity that you know with a high statistical confidence that consumers will not consume makes sense.
    Exactly. I get blasted sometimes for my analogies on this forum, but I'm going to do one anyway.

    My wife and I were discussing this awhile back and likened it to the hamburger joint on the corner selling giant burgers with fries and a drink. A lot of people don't eat the fries, but feel like they're getting a better deal because they got fries. The great thing about the hosting industry (at least at this point in time) is that you can pull those fries out of the trash and sell them to the next guy that wants fries.

    Alright! Let me have it! I made an analogy! It's not perfect, but I had fun.
    Sincerely,
    Andrew Kinney
    CTO, Advantagecom Networks
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  22. #22
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    Originally posted by dynamicnet
    In terms of naming, name sources for your so called industry standards.
    If you are referring to overselling in the context of overloading a server, then I can name Verio, Interland, Dellhost, etc... They give say 10 GB transfer per month to shared hosting accounts, and put 200-500 accounts on a server. Not too many servers could handle 5000 GB/month shared hosting with CGI's running, etc...

    It's all a numbers game. With proper server management, you should not run into a problem. Any company that wants to turn a viable profit will adhere to a model such as this for shared hosting. Now if it's dedicated, the same still applies. Look at Rackshack. Could they survive if everyone who had a server with them used 300-400 GB/month. I doubt it.

    Dynamicnet's existence it seems is to flame anyone he/she/it can these days, as exemplified by the last 50 or so posts

    - John C.

  23. #23
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    Originally posted by JohnCrowley
    If you are referring to overselling in the context of overloading a server, then I can name Verio, Interland, Dellhost, etc... They give say 10 GB transfer per month to shared hosting accounts, and put 200-500 accounts on a server. Not too many servers could handle 5000 GB/month shared hosting with CGI's running, etc...
    Yeah I know of a certian host who has 600+ accounts with an average promise of 10Gb/mth in data transfer for EACH ACCOUNT. They then brag that they only have 600 domains on the server.

    Our model is simple - 40 accounts per server - each account can use 10GB/mth data transfer and 1GB disk space [$25/mth base plan, 80GB drive + 80GB backup drive]

    AussieHost.com Aussie Bob, host since 2001
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  24. #24
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    I was a sys admin at a major ISP based out of Michigan. And I can tell you one thing if you are doing dial-up and you dont oversell you will loose money.

    Lets say a t-1 has 24 64k channels and costs about 1000 a month

    I sell my service to 24 people at $20 dollars a month, whoops! I lost around $500. Now what to do about this?? I know only 1/3 of these people are one at any given time. So I will just take my portmaster(of 24 modems) and I will sell 72 acounts instead of 24 and make around $500.

    Every ISP does this. When it comes to broadband that is a different story.

    I have my DSL line whoooohoooo! They promise it to be 768k thats great because it is! from your nid to the dslam to the ISP. The ISP however only has a t-3 45megabits/s and they have way more than 60 768k customers. How do you think that they pay $10k a month for a conection and only give it to you for $60

    Bandwidth is to expensive to give away cheap and not oversell.

  25. #25
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    Our model is simple - 40 accounts per server - each account can use 10GB/mth data transfer and 1GB disk space [$25/mth base plan, 80GB drive + 80GB backup drive]
    No question - thats a nice model - it's simple & clean & is in-line with a business built upon a solid reputation. It must be - $25/month base is a relatively premium price. Each server is well under capacity, reliability is high & it supports a reputation built with hard work. This is a good place to be. Customer relationships & reliability will maintain the premium & the model makes sense.

    Now - assuming that the average bw consumption over the 40 accounts is 3 Gig/Month. If 1 customer asks for 20 gig - the question is do you buy an extra 10 gig or do you dip into the unused 280 GB & increase the margin on the server. You might, you might not. It would make good business sense to set a level of free bw that matches your overall strategy.

    If your strategy is volume at low margins, no premium price then you would oversell to a greater degree, but if you make your money on a premium service then you may set that oversell very low or even zero.

    My overall point is that overselling must be taken in context of a market strategy. It's certainly not unethical - so long as you supply what you promise with high confidence limits.
    Andrew McMaster
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  26. #26
    Greetings:

    My points is that if you are going to make a statement that it is an industry standard, then name the source(s) of your statement.

    If you cannot, then it may be your standard or the standard of a view.

    NTT/Verio on the Advanced, Enterprise, and RapidSite divisions do not oversell bandwith. We base this statement as dealing with the Presidents and upper management of each of those divisions.

    Based on dealings to date with Host Remote and Rackspace.com, I would venture to state they do not oversell their bandwidth. Our parent company does not oversell its bandwidth.

    Morally, and ethically selling something you don't have is wrong. You can make a profit ethically and morally doing the right thing.

    So this is not about whether it is ethical or morally right to make a profit. It is a matter of overselling that is wrong.

    Thank you.

  27. #27
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    Morally, and ethically selling something you don't have is wrong.
    You are right - selling something you don't have is unethical, but overselling bandwidth is nothing to do with selling something you don't have - Quite the opposite it is about selling something you do have.

    Overselling as a phrase has some people confused & up riding on high horses - maybe a better term is oversubscribing.

    You can make a profit ethically and morally doing the right thing.
    Isn't that one a given?
    Andrew McMaster
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  28. #28
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    The principle of overselling may be wrong - in theory - but I can cite an example of a multi-national company who oversells their telephone lines and still doesn't run into difficulty.

    We live in the sticks, and problems with telephone lines almost became a weekly occurance until we finally had a new cable run the 1.5Km up to our house. During this time I got to know a few of the telephone engineers pretty well.

    One day they told me about a village that they had been working at and installing a new cable to. They installed a 3-line cable to the village with 12 telephones. When the cables were monitored the 3rd line was used once in a blue moon (i.e. so rarely they could almost have done without it). Each house in the village is paying rental for the line, yet there wasn't enough physical lines available if everyone used their telephone at once.

    This is a perfect example of "overselling", but there was nothing immoral about it. Enough capacity was provided so that no one even knew there was only actually 3 lines coming into the village and the 3rd line was used so rarely that it never became a problem.

    When I asked him what would happen if everyone started to use all of their lines and there was complaint about the connection. I was told that if this did happen they would install a larger cable.

    So, the company oversells, but it is willing to back-up it's service with more capacity if it was required.

    I guess many hosts are in the scenario of overselling, but what it comes down to is will they back up these promises of provision if the capacity that they are offering is actually used. If they will, I can't see a problem, if they won't or can't then that is when it becomes immoral.

  29. #29
    It is a generally acceptable business practice for ISP's to oversell resources
    Yes, but you do it on the back end not upfront. You build your price/feature structure as if you expect full usage from everybody, but you load your servers based on overselling percentage that it is acceptable to you.

    Example you have a server that costs 200 bucks and 100 Gigs of bandwidth included. Additional bandwidth over 100 is 1.5 per Gig. You can realistically put 200 users on that server. You are selling a plan that offers 1Gig bandwidth and 100MB space. You expect that users only use 50% of the offered resources. How should you price it?

    If I assume 100% usage from everybody. I'll do something like this. I can put 100 users on the server before I am charged for extra bandwidth. I want to make a profit so, I am going to price my plan at $4. That way I will have $200 in profit if I don't want to pay for overages. Now I can oversell, I estimate 50% usage so I put 200 users on that box.

    Worst case scenario my revenue will be $800 my cost will be $200+150 for overages. Profit for that server is $450

    If I oversell upfront I will either half the price or double the bandwidth and then my worst case scenario will look like this.

    Half the price:

    Revenues $400 Cost $350 Profit $50

    Double the bandwidth

    Revenues $800 Cost 200+450 for overages Profit 150. In either case your gamble did not pay off.

  30. #30
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    Originally posted by dynamicnet
    Greetings:
    So this is not about whether it is ethical or morally right to make a profit. It is a matter of overselling that is wrong.

    Thank you.
    Overselling is not right or wrong, it is a matter of how you handle it. Saying it is wrong is quite a sweeping statement. You can put 100-200 accounts very easily on one machine, and offer 10-20GB/month to each. If you start to see BW getting too high for the server, you move some accounts to another server. If you're competent, you can move a site in 5-10 minutes without any interruption to service. So, you are overselling that one server, and if it's a problem, you dela with it. Simple business.

    Just because your company may not adhere to this model, does not make it wrong. Maximizing profit while maintaining 100% adherence to BW statements is what separates good businesses from bad ( love the generalization there, huh? )

    It's all in how you handle it, not how much you oversell. And yes, Verio and Interland oversell their shared servers, no matter if you know the President or not. Since I know the former VP of sales of NTT/Verio, I also have some "insight".

    Rackspace - Now there is a company that backs up their claims. But if all their clients used all the BW allotted to all the servers, this would probably cause Rackspace some pain as their network may not be setup to handle 100% usage by all clients all the time, which is not realistic at all. So I guess they are wrong too

    What about cable companies that offer cable Internet access. If all the users used all their bandwidth 24 hours a day, this would bring the network to a grinding halt, as they do not have the BW to support it. I guess they're wrong too. Or maybe they are smart business people who realize their is an average usage, and a peak usage, and as long as you can handle the peaks, you're OK. And if not, you then beef up the network, add more servers, etc...

    Just some more ramblings of an obviously "wrong" businessman.

    - John C.

  31. #31
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    Bad analogy using the ISP over and over.

    A site is expected to be up 24 hours a day.

    The dialup user is not.

    The broadband user is not expected to be pulling traffic every second of the day.

    The dialup user is not on a business type account usually, yet most of my customers looking for hosting are looking for business class hosting.
    dotGig
    <:<: [Fruit eating linux administrator]

  32. #32
    Aren't most people automatically overselling by default? For example, lets say they get 300GB of transfer from their server provider to use -- isnt the 300GB already being oversold to the user? So even if you aren't consciously overselling a chunk of the 300GB, you in fact are, just further down the line. Am I making sense?
    Jeremy [email protected]
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  33. #33
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    Originally posted by Samuel
    Bad analogy using the ISP over and over.

    A site is expected to be up 24 hours a day.

    The dialup user is not.

    The broadband user is not expected to be pulling traffic every second of the day.

    The dialup user is not on a business type account usually, yet most of my customers looking for hosting are looking for business class hosting.

    ISPs also dont gauge their business plan on gigs of bandwidth.

  34. #34
    No analogy is ever perfect. That doesn't invalidate the point being made.

    I would also offer this:

    Without ISP's, there would be no bandwidth usage on any hosting account. Ponder that for a bit.

    It's a two sided equation, and the bandwidth usage of an ISP is almost the inverse image of the large colocation center.

    I believe overselling by an ISP is a relevant analogy. An ISP uses the same telco lines that a colocation facility uses. The same base costs are there, so the business model that an ISP uses is highly relevant to the hosting industry.
    Sincerely,
    Andrew Kinney
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  35. #35
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    Originally posted by advantagecom
    No analogy is ever perfect. That doesn't invalidate the point being made.

    I would also offer this:

    Without ISP's, there would be no bandwidth usage on any hosting account. Ponder that for a bit.

    It's a two sided equation, and the bandwidth usage of an ISP is almost the inverse image of the large colocation center.

    I believe overselling by an ISP is a relevant analogy. An ISP uses the same telco lines that a colocation facility uses. The same base costs are there, so the business model that an ISP uses is highly relevant to the hosting industry.
    The analogy doesnt matter he said an isp does not oversell which is wrong.

  36. #36
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    Originally posted by advantagecom
    Anybody that says that they aren't overselling is either selling themselves short or doesn't understand what overselling is.

    It is a generally acceptable business practice for ISP's to oversell resources. Telephone and backbone companies do it all the time.

    It's based on the fact that not everyone will be using the resources at the same time and some use very little resources altogether.

    In many cases, it is the only way to turn a profit as a hosting company and attract new customers.

    I think you'll find, however, that very few hosting companies will actually admit to the practice. It has become a dirty word because of those companies that don't do controlled overselling. Some companies have not managed their resources well enough to keep performance up while overselling.

    We do some overselling. We also have huge amounts of extra capacity on tap if there is a sudden bum rush on all of our customer's data transfer quotas (hasn't happened in our 4+ years of doing hosting).

    BTW, we wouldn't grow too fast. No well managed company should ever run into that problem. We use higher pricing to slow down demand if our accounts are selling faster than we can build out our network to handle the demand. If we can't slow down demand with higher pricing, ooh, that would be a wonderful problem to have!
    Everything i could say, plus more. (good man here)
    Marcus Brown

  37. #37
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    If you say that you don't oversell, then I expect you to pay me back at the end of the month for the amount of bandwidth I haven't used!

    If you profit is based on that amount of money, then your profit is based on my habbit of not using all the resources allocated to me, which is overselling.
    Ahmad Alhashemi
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  38. #38
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    Even banks 'oversell'... they just happen to oversell money. If everyone today wanted to withdraw their money from a bank then the money would simply not exist.

    We don't oversell as such, but we know not every client will use their transfer or storage allocation and so that works out to a nice financial bonus for us. Approaching the matter this way can make a business more resiliant to sudden surges in demand as we're not relying on the fact that clients won't use what they pay for.
    hosting53.com - the hosting solutions company

  39. #39
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    Most people buy big web sites that allow 5GB of web space, i have 17 like that, that only use about 200MB of that space, what else am i suposed to do witht hat un-used space?
    Marcus Brown

  40. #40
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    This conversation again? I'll ask this once more: If everyone in the world flushed their toilet at the same time, what would happen?

    It's a calculated risk, as long as you can afford to take the risk there is nothing "unethical" about it. The more you oversell, the higher the risk and the higher the potential return. Risk vs reward, this isn't a new concept.
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