Please help me to solve a simple math task related to VPS hosting.
I can not understand how do VPS providers make any profit. And I lost my sleep over this riddle
Ok, let's look at two popular VPS providers (I change their names a little for their business privacy reasons ) : vp$land and kicka$$vp$
One of them offers this VPS at $18/month:
*** Windows VPS Lite ***
512 MB RAM
6 GB space
64-Bit Windows 2003 Server Enterprise
Virtuozzo Power Panel
(Your VPS will be hosted on award-winning Dell rack-mount servers with Intel Xeon processors)
(FREE Weekly backups)
Another one offers this at $35/month:
*** Windows Entry VPS ***
960 MB RAM
10 GB space
Windows Server 2003 or 2008 OS
Virtuozzo Power Panel
(Quad-CPU Redundant Servers)
(FREE Daily Backups)
Ok, now let's assume that I'm going to provide VPS hosting. I'll rent a server at ThePlanet (or other well-know DC), install Virtuozzo and make VPS packages similar to above mentioned "Windows VPS Lite" and "Windows Entry VPS".
First of all I need a "Quad-CPU Redundant Server" (as our providers said), also it should be "RAID Server" (as they say).
Let's assume I'll take a Virtuozzo license for 10 VPS. Thus I can place 10 VPS on my server. In this case I need at least 8GB RAM for 10 "VPS Lite" or 12GB RAM for 10 "Entry VPS", because we need some RAM for the host OS itself, not only for VPS. Also we need some place to keep our daily or weekly backup copies.
Thus, we need:
4 HDDs (2 RAID HDDs for VPS, 2 RAID HDDs for backups)
8 to 12 GB RAM
Windows 2003 DataCenter SPLA license
Virtuozzo for Windows - 10 VPS license
Ok, I visited some dedicated server provides sites and find out this:
QUAD PROCESSOR Intel Xeon E7310 1.6 GHz
8 GB RAM
10 Mbps network adapter
16 IPs (We need it for 10 VPS, right?)
2x250GB HDD connected by RAID1 (for VPS)
2more 250GB HDD connected by RAID1 (for backups)
is ... $700/month !!!
+ Windows 2003 DataCenter License for Quad CPU server is $200/month
+ Virtuozzo for 10 VPS is $100/month
Why do I talk about "Windows 2003 DataCenter SPLA license"? Because only DataCenter license allows to place more than 4 VPS per server. I do not understand how do those providers use "Windows 2003 Server Enterprise". The Enterprise one allows 4 VPS only. Guys, read SPLA rules!
This server would cost me $1000/month and if I split it on 10 VPS I should take $100/month from my customers just to cover the server rent. You said "profit"? Forget it!
$100/mo. is more than $18/mo., isn't it? And it is more than $35/mo. too (and if we'll add 4 GB more RAM to make it 12GB it is +$100/month more or $110 per VPS).
Ok, 10 VPS is not enough for such a powerful server. Let's place 30 VPS:
$700 for server
$200 for RAM (we need RAM for 20 more VPS, 512MB each)
$200 for Windows license
$125 for Virtuozzo license (30 VPS)
$41 per VPS. And $41 is still more than $18.
Ok, 30 VPS do not male any profit. Let's place 100 VPS per server and will keep our mouth closed when our customers ask "How many VPS do you place per server?":
$700 for server
$1100 for RAM (we need 52 GB RAM for 100 VPS. By the way, is it possible to insert?)
$200 for Windows license
$225 for Virtuozzo license (100 VPS)
$400 for additional HDDs
$26.25 per VPS. And it is still more than $18.
Ok, if I'll get 52GB RAM the provider will give me some discount and I'll be able to go to $18 per VPS. But WITHOUT ANY PROFIT.
Well I'm guessing them companies have a large client base. If they own their servers and they put them all in the same location their costs would shoot down. Same with Virtuozzo, I'm guessing there like every other company the more you buy the more you save.
It's called colocation. No one pays $1000/mo for a server if they are providing VPS
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These companies *probably* do not rent their servers but actually bought them. It keeps costs down so they don't pay $1000 / month.
Ok, what is the price of a Dell Quad Xeon server with 16GB RAM and 4 HDDs?
Remember, you still need to pay $200/month to Microsoft and $125/month to Parallels (for 30 VPS license). It is $325/month. If you place 30 VPS, it is $11/mo. per VPS just for software licenses! How can you sell at $18 if $11 spent for software and only $9 left for support team salary, hardware cost amortisation, taxes etc.?
No hosting provider is going to purchase a quad-cpu server and then stick in only 8GB of ram with a couple of 250GB drives. More likely it will have 32, 64, or even 132GB of ram, with at least 8 drives. If they're using SATA then it's likely they'll be at least 500GB but more likely 1TB and the drives will be in a large RAID configuration like RAID6 or RAID10 - they might even be using a separate NAS for their disk array - and the server of that spec will probably have at least 4No 1GB (or 10GB) network ports.
They won't be backing up to the same server but a different backup system.
With only 32GB that gives them the ability to host over 30 sites at 960MB of ram, or 60 sites at 512MB (as per your examples). With 64GB of ram, these will double.
2008 Datacenter licence costs will be around $240 per month for 4 CPUs.
Their income from 32GB would be $1080 and $1050 respectivey. With 64GB that would be $2160 and $2100. Not bad for a direct cost of $240.
Then you can consider the server. Say that server costs $10,000 to purchase, that's only going to cost around $460 per month to lease over 3 years. They may not lease, but they'll be writing the cost of the server off over a similar time frame. The server doesn't have to be a 6U monster, it could easily be a 2U or 3U configuration allowing them to install a lot of them in a 47U rack.
There's a healthy profit to be made when you compare direct costs, and you also get the advantage of economies of scale if you're a large provider. They won't be making a loss.
Good answer - so generally we can say you will make more of a profit from offering VPS on a co-located machine than you would off a beefed up dedicated server.
In most cases - definately...but only once you've almost filled the server with VPS customers. At least with a dedicated server you're getting a decent return against your investment from the very first payment.
When you split it into a VPS server, you've got to have at least X amount of customers before you cover your costs so you could be running at a loss for a while, but once the server is full you'll almost certainly make a better return on a server full of VPSs as opposed to a dedicated server.
That's only covering direct costs. There may be greater support costs (more customers for each piece of hardware), greater licensing costs if you supply other services (control panel etc), and more hassle if something goes wrong (32 irate customers rather than 1). It may not always be more profitable in the long-run with a VPS server versus dedicated server, but comparing direct costs/income then VPS will bring the larger returns.
We currently rent our equipment from various different providers and i will tell you now. You need to shop around for your Nodes. Also we only provide Linux VPS's and was originally looking at Virutozzo. In fact we actually installed it on a few servers, but when we found out you couldn't view monthly bandwidth and was told by one of there software engineers it was something that there customers havent requested, then i thought no way (esp after how much it costs!!!).
You need to look around but our general view is turn over is approx 3 times the servers monthly out going cost before you then even look at overselling Hard disk space/ram.