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  1. #1
    Join Date
    Oct 2002
    Location
    Florida, USA
    Posts
    12

    How do hosts offer these prices?

    I am new to to the webhosting business, but not new to the technology. I have designed and operated websites for small and large companies. I was offered a chance to design a small site for a local company and they asked about hosting. I took this as a opportunity to get into the business. I researched the busisess, developed a plan, and chose a bandwidth and server provider I felt would be in business for the long run, and could best support me and my client(s).

    I feel that I have priced my services fair and plan to make servcie and support priority over high profits. Which brings me back to my main question. How do some of these vendors offer the space and bandwidth for the prices that they do?

    Sorry for the length.
    Best Regards,
    Secure Reliable Low Cost Hosting Solutions
    http://SRLHosting.com

  2. #2
    Join Date
    Apr 2002
    Location
    North Kansas City, MO
    Posts
    2,565
    Volume. Thier plans are based on a high volume model. That, and they have other jobs, cheap dedicated servers, etc.

    Personally I think you're on the right track. Build a reasonable profit base, one that will sustain you and your operation so you can concentrate on service. In the long run you'll win out.

    Good luck.

    Aaron
    Aaron Wendel
    Wholesale Internet, Inc. - http://www.wholesaleinternet.net
    Kansas City Internet eXchange - http://www.kcix.net

  3. #3
    Join Date
    Sep 2002
    Posts
    522
    Overselling resources, cheap providers, and understaffing are some of the ways. I'm not saying everyone here does that so don't flame me. They have some solid providers here.

    As for volume, I read a quote from a Harvard School of Business professor that basically said (paraphrasing), "you can not make up for small margins with volume". The short version of his explanation was small margins that can not produce a profitable company in the smaller stages will inherently not be able to sustain a profitable company with many many more customers.

    When you don't have enough profit built in to your pricing, the cost of adding infrastructure to support your new growth when you do get the volume you think you need will offset the new revenue to the point of you making the same net amount of money or less per month. Of course you will then get some companies that don't expand and just try to handle all the new business with the same setup they already have. Judging by the speed at which fly by night hosts go out of business, I think many people are willing to learn this the hard way.

    I just found a hosting company offering 1Gig of storage space and 500Gig of monthly transfer with Plesk control panel and 24/7 support for $50/YEAR. Not per month (even though at a per month price this is still rediculous), $50 per year.

    You have to figure out your target market and set up your business to cater to that market. Not everyone can compete in the $2/month hosting business and most companies don't want to. It seems like you have a good idea of what you should do. Stick to your guns.

  4. #4
    Join Date
    Oct 2002
    Location
    North America
    Posts
    1,229
    It's a numbers game, a risky numbers game. They're playing on consumer ignorance - which, let's face it, is not exactly in short supply when it comes to web hosting.

    By gambling that not all of their clients will use all the resources they pay for, hosts will make their packages look very attractive - especially to the hosting-newbies, who simply see higher numbers in the allowance quotas and assume that this is a good thing. They are looking to build a customer base quickly by having attractive offers. Most of them, though, have some gotcha in their TOS that states that if a client actually does use a significant amount of server resources - bandwidth particularly - then the client will lose their account. The sites hosted with these companies also tend to be served up very very slowly, because even with low-impact accounts, there is a LOT of traffic being handled by the machines.

    A percentage of the low-cost hosting business, surely, is people with little or no business acumen entering the hosting business, looking around, and thinking that they have to compete with the bargain-basement hosts to get any clients. They don't know how to do a proper market analysis, they may not know how to target a niche market, they may not understand the dynamics or the definition of a saturated marketplace. (Ironic, considering what happened just two years ago with the dotcom industry...but I digress.)

    Stick with what you know you can provide in terms of resources and services, build your client base more slowly - they'll appreciate it, and when these other hosts eventually are forced out of business, you'll still be standing.

    Make that "*we'll* still be standing". I am, after all, something of an optomist ;->

  5. #5
    Join Date
    Apr 2002
    Location
    North Kansas City, MO
    Posts
    2,565
    The other thing alot of these companies don't count on is there own attitude. I would never sell hosting at $2 a month because (among other reasons) I'd be afraid that I'd blow off to many customers because they were only worth $24 a year to me. I spend more than $24 on lunch.

    I charge a fair price that makes it worth my time and I give good support.

    Look at Cyberwings for example. Things started going bad and people started complaining. He told the complainers to F off. After all, what's $3 a year. Unfortunately he told one to many customers that, who told all thier friends and now there's no more cyberwings.

    The sad part is that these guys hurt the honest businessmen (and women) out there. I can't count the number of times I've had people bitch because they can get hosting for half my price elsewhere. What's really funny is recently I had a high maintence customer leave me for a cheap host. (I was kind of glad to see him go, he was a pain) a week later he calls me to ask questions about his account. I helped him a little but then reminded him that he was no longer a customer. "I know, but I can't get ahold of these guys." He's back, by the way.

    The general public has no idea what terms like uptime and support mean. They have no clue that having 250 accounts per server is much better than having 2500 accounts per server. All you can do is try to educate them and be there when they fall flat on thier face to pick up the pieces.

    Aaron
    Aaron Wendel
    Wholesale Internet, Inc. - http://www.wholesaleinternet.net
    Kansas City Internet eXchange - http://www.kcix.net

  6. #6
    Join Date
    Nov 2000
    Location
    San Diego
    Posts
    3,407
    Volume. Thier plans are based on a high volume model.
    Well, that is what they say because they are full of crap. Can you name one host doing "volume" that offers throw away pricing he is talking about? Anyone doing what I consider "volume" is $10.00 or more per month. Volume is a buzz word these host use to valadate something they know nothing about.

  7. #7
    Join Date
    Sep 2002
    Location
    Phoenix area
    Posts
    1,121
    Dollars in - dollars out = profit. If you're not taking in many dollars, you don't leave room for dollars out or for profit. There are fixed costs involved with levels of hosting, and there are costs inherent with each client brought on (support, billing, etc).

    Hosts that charge rediculously low prices either don't spend anything on their infrastructure (so they can't sustain growth), don't spend on supporting their clients (so support and network sux), or they don't have any profit (so they won't be around a while).

    It's easy to start a hosting company and charge $2/mo and get 1,000 clients for $2000/mo gross - $500/mo expenses = $1,500/mo profit. Problem is that's a one-man show with not much support. Also making $18,000/yr gross is fine if you're 16, but won't pay your mortgage or feed your kids. The company will fail eventually. Going in multiples of 1,000 clients will increase the gross income, but you then start increasing your costs since your infrastructure must grow. Again, it's not sustainable.

    I spent over 50 hours alone on the pricing structure of our business plan. Pricing depends a lot on who your clients are (support variable etc.) but there are inherent costs involved that are common and similar to all hosting. Wholesale colocation and bandwidth can only go so cheap, and without spending money on software, you'll spend more money on support and client processing/billing manhours. There's only so much automation you can do (automatic signup isn't very secure for example), and automation requires manhours or direct costs upfront to implement.

    Basically, I've never seen a plan that offers good, sufficient service, a quality hosting product, and supports growth and stability, without being above the few dollars a month the bottom-dollar hosts are charging.

    Intro teaser accounts are an exception though as long as they are designed to be temporary and/or eliminate some costs such as merchant charges (yearly vs monthly) or are with no support, etc.
    Learn survival/prepper information from a combat veteran at Graywolf Survival

  8. #8
    Some plans that are being offered are unreal. Even if the client would not use all those resources, the host would get in trouble sooner of later.

    On the other hand everybody handles the hosting business differently. Being part of a larger company enables addaction to offer 6 months free hosting, simply because we don't need to make any profit on those accounts for 6 months. We could not sell it for $2 per month though, even billing the customers would cost more than that.
    Providing YOUR Internet Action!

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  9. #9
    Rob

    Excellent post and I commend you for sticking to your pricing, I am positive you will win over some good clients who will appreciate your service and are prepared to pay the extra few Dollars.

    sell sell sell for 3 months to fill a server.

    offer 1 gig space and 15 gig of bandwidth for $3.99 and hope and pray the person does not use their allocation, but as we see about the forum the results of this are now showing , downtime, lost websites, total shutdown of sites without notification, people being either kicked off servers or being asked to leave.
    And people bailing out of the business alltogether.

    The problem is when you have 200 clients on a server which is using 45 gig bandwidth and has not enough ram to sustain speed of operation is only the start of the problem.

    A few months go by and more clients on server, more bandwidth is used and the server starts to crash, because it was undersold in the first place the person running the show does not have the funds to buy more ram or load balance their servers.

    I see this problem being helped along by certain Control Panels as well, some Control panels allow overselling some don't, the ones that do are a bonus for newcomers who quickly fall into a trap.

    just an opinion.

  10. #10
    Join Date
    Oct 2002
    Location
    Florida, USA
    Posts
    12
    Thanks for the replies. After looking through the webhosting request plans, I thought that I had made some terrible miscalculations on plan layouts and pricing. I now know that those plan owners are out of line.

    Thanks again for the info.
    Best Regards,
    Secure Reliable Low Cost Hosting Solutions
    http://SRLHosting.com

  11. #11
    Join Date
    Feb 2002
    Location
    Australia
    Posts
    24,009
    Originally posted by erobs
    Thanks for the replies. After looking through the webhosting request plans, I thought that I had made some terrible miscalculations on plan layouts and pricing. I now know that those plan owners are out of line.

    Thanks again for the info.
    Set your plans/prices to where you're happy. You still need to be competitive, but no need to give it all away etc. Your clients will be looking for personal service. Build your client base 1 client at a time. Word of mouth will be your greatest method of customer acquisition. 1 client will become 5 clients, who becomes 50 clients, who becomes 200 clients. It's just a matter of you hanging in there over time.
    AussieHost.com Aussie Bob, host since 2001
    Host Multiple Domains on Fast Australian Servers!!

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