Web Hosting companies – The competition
The web hosting industry is extremely driven by competition. There are thousands (maybe 10’s of thousands) of small and large web hosting companies out there. It is nearly impossible to stay current when researching this industry. Web hosts are shutting down and at the same time two others open the doors for business. A printed directory would be outdated one hour after being published. There are probably as many good web hosts out there as there are bad ones – but you mainly hear stories about the bad ones. And there are no guarantees that a web host who is considered to be good will offer the same quality of service two years down the road.
What kind of companies are out there? What is your competition like if you are a web host? What to look for, if you are a customer looking for a web host? The following part of the book will describe the most common types of web hosting companies out there.
1) The kid shop
One of the bad things with doing business online is that it is nearly impossible to know who you are really dealing with. It could be your own grandma running a server from here room in the retirement home or it could be a 13 year old kid who runs a small business out of his/her room on a DSL connection. However – you will notice if you are dealing with a professional web host or a kid when it comes down to things like service and customer support in critical situations. If things go smooth you would not really see the difference – unless the technology (server, bandwidth, performance, etc.) is already horrible and it would be obvious that there is something wrong. A kid shop usually won’t offer a regular way to accept payments via credit card. If at all – PayPal is as good as it gets. Not that PayPal is a bad way for accepting credit card payments, but if it is the only option other than checks or cash it should ring a bell and warning flags should go up. There is also no real business phone available and the business address sounds more like a residential address and not a business address. If there is a phone number and you suspect dealing with a kid shop – call them up during normal school hours or late at night and check who answers the phone. The business name could be another indicator. Most professional web hosting companies are run as an LLC or as a corporation. If the business web page does not indicate that it is an incorporated company or an LLC, I would ask questions. You can also research this by looking up the information in public registers with the city or state where the business is located. Please be aware – it is usually a combination of things that points out that you are eventually dealing with a web hosting company run by a kid.
Of course there will always be the exception from the rule. I have seen teenagers being more successful doing business than adults.
2) The ‘gone tomorrow’
Some web hosting companies are not run very professional. The owner does not really have a sense for business and economics. The math they do when starting the business only looks at the immediate profit. But that is not the way to run a business. They match any price out there – no matter how low the price is. They know they pay $55.00 for 50 GB bandwidth in wholesale and they know that they can oversell the capacity by at least four (4) – often even more than that. That means they actually sell 200 GB bandwidth on a 50 GB package. This “over-selling” is very common in the industry and will be explained later on, at this website. The problem with this type of web host is, that they are usually not prepared to expand capacities and that they are not prepared to provide good customer service to all their clients. All they are interested in is the profit they can make – no matter what. They also do not work with a business plan and/or a budget. They do not calculate their real cost of doing business – all they see is the profit they can make. Again – they will beat every price of the competition. When it comes down to support and time needed to support the clients, they would basically work for cents. They offer annual hosting for $10.00 one time payment – how do they want to cover the cost of support with these prices?! When the going gets tough, these kind of web hosts just fold. They close doors and leave their customers out in the rain.
How to identify such a host? This is pretty easy – look for the cheapest web hosts out there. And – just do the math yourself.
The web host sells you a hosting package for 5 GB bandwidth (monthly) and 200 Megs of disk space for $30.00 per year.
Assuming a hourly salary rate of $5.25 (you have to put a value on your own work, right?!) for a work hour and 15 minutes of support time (including invoicing and billing) per customer per month (some need more, some need less – this is just an average). This adds up to 3 hours of support per customer per year. So, the web host wants to be paid $5.25 per hour – 3 hours support a year per customer equals $15.75 per year. This leaves $14.25 from the $30.00 annual hosting fees.
Now the web host needs to pay fees for collecting the payment (e.g. credit card fees). In our case we assume this to be $0.50 one time fee. This leaves $13.75 leftover from the original $30.00 per year.
Assuming the client only uses 1 GB bandwidth of the purchased 5 GB bandwidth per month and that 1 GB is what the web host has put into consideration for his calculation. Assuming the web host can purchase this 1 GB for $0.75 per month. This would add up to $9.00 per year – effectively leaving us with $4.75 of the original $30.00.
We haven’t covered any other costs of doing business yet. But at this point we just go and play with the numbers a little bit to demonstrate why and how this business model will fail.
1) Assuming the customer would use 4 GB bandwidth per month out of the five he has purchased. This would add additional $27.00 to the cost in our calculation.
2) Assuming the customer needs 1 hour of support per month. How is the web host being paid for this or can he afford to pay for support when only charging $30.00 per year? So, you figure out very easily what the quality of this hosting provider would look like.
3) The solid host
There are many small to medium-size web hosting providers out there who charge fair prices and deliver good value in return. Pricing is affordable, but not the cheapest. Support requests are being handled very professional and in a decent time frame. These hosts do not necessarily make lots of advertising. They live from word of mouth advertising and networking in many cases. They might offer a trial account or a money back guarantee for up to 30 days so that the new customer can test drive the offer. All critical information about server hardware, data center and business location is easy to find on the web site and very often you can find even a phone number. Support is usually done through the web site or via email. I have even seen a web host shutting down the sign-up page and to discuss the issue of growth with his clients. You know you found a good web host if something like this happens. Support is usually available 24/7 if the host targets international clients from all over the world. Other hosts that only target the local market or eventually national market might not offer tech support around the clock – which in many cases is not a problem at all. They work when their customers work. Solid web hosts eventually offer dedicated servers and other technologies to their clients, too. It really depends on the actual size of the business and what the target market is.
4) The solid host – gone bad
If some businesses reach a certain size, you see a change going on. I don’t know if the business owners are going crazy or what happens, but I am always amazed how a good company with a good reputation can go from good to bad. Support goes down the drain, denial of problems that are highly visible and not being able get back on track. Staff changing often and within short periods of time and/or the operation is under-staffed period. I assume that the high level of cash coming in has to do with this. Some people are just not able to handle large sums of money. They might mix businesses expenses with personal stuff or just get greedy. They lose the sense of carefully doing business and do no longer act responsible. In many cases this is a slow process and not immediately visible.
How to identify such a web host? First of all – there is no one single indicator. It is usually a sum of several issues that make the case. If your requests for support suddenly start taking much longer to be solved, this could be one of these cases. The web host denies problems like downtime and blames it onto the customer instead or that there was no downtime at all. Your credit card gets charged twice in a month and it is a drag to get a refund or to get the web host to acknowledge the mistake at all.
5) The large host
The large host has its own data center. They usually employ a large number of staff and have 24/7 support available. Support usually comes through the web site or via phone and is very professional. The technology is well-chosen and selected for reliability. They offer different solutions for many cases – including fail-over configurations for web sites. This is not standard at normal web hosts but as the larger hosts target mainly business clients they also cover this part of the market. Pricing in general is higher compared to smaller operations but is justified by the way how operations are being run. These hosts have a large advertisement budget and can easily be found when conducting a search on the Internet. In most cases an individual is better off with a smaller web host if price is at consideration.
6) The ISP web host
Many Internet Service providers offer free web space to their clients as part of the deal. These are usually standard packages with no features at all or just a handful of basic features. Prices range from free to X $$$ per month. There is no rule. The client does not need a domain name but uses a sub folder or sub domain under the ISP’s domain name. I personally do not really consider this as actual web hosting. But many personal web sites do only exist because of the free web space the ISP’s offer. It’s an affordable way to start out when building a website.
7) The friend host
In some cases a friend or a family member runs his/her own web server and offers web hosting to friends and family. Sometimes it is free, sometimes they charge a little money for it to reduce the actual cost. These web hosts can be the best or the worst deals a customer can get. No generic recommendation can be made. If you need to have a business website hosted and need reliable service and uptime – stay away. Don’t be cheap.
8) The web designer host
If you get your web site made from a web designer, they usually try to sell you the web hosting as part of the deal. The web designers usually rent web space or a server somewhere else and use it to sell this kind of service. Support is only available during business hours in these cases. If the client wants to move to a different web host, it might be more difficult because of the nature of the business relationship. Some web designers also make it more difficult for the client and try to block the move. They usually over-charge the client with their web hosting anyway and try to defend the charges because of the actual service they provide. If you look closer at the work they do – in many cases there are no extra services that they provide. They just charge the higher fees. Of course there are exceptions from the rule but in 80% of the cases that I have seen – the client could have saved a lot of money by moving to a cheaper web host without losing quality of service. The web designers take advantage of the clients by making false statements or by not telling all the details. The clients usually do not do any research on web hosting options either.