The problem for web hosting is that everybody wants a free lunch

It can’t be easy to be a web hosting company. On the Internet everybody wants a free lunch (or at least a very cheap one). And this of course includes hosting.

To prove this point, we looked at search data from Google and found something quite interesting for the term “web hosting” (using Google’s excellent Insights for Search tool).

Top searches related to web hosting, worldwide:

And if anyone thought so, the situation isn’t better in the United States.

Top searches related to web hosting, USA:

We hardly need to comment on that, do we? People love free stuff, and this apparently includes hosting.

Fortunately there are always those who will pay for a quality service, so all is not lost by any means, but it’s interesting that “free” is such a dominant search term.

Questions, questions…

For you web hosting companies out there, is this demand for “free web hosting” something you are noticing? Have you been able to turn this to your advantage somehow?

And a question for you “hosting consumers” who may be reading this: What makes you willing to pay for hosting? How can web hosting companies convince you that their specific service is worth your hard-earned money?

14 comments

  1. I actually tried to create a web hosting company for a bit. It didn’t grow too big, I intentionally kept it to under a 100 customers while I tested the waters. I had to shut it down before the first year was over. Well I did because I prefer to invest in quality businesses rather than extremely low margin and bad service businesses.

    My conclusion was that it’s a very very tough business to be in. At least for shared hosting. No one wants to pay any money yet they want full support and hand holding and very competent staff. Now I can understand this request if you’re paying a lot money, but for cheap shared hosting, it’s just not possible.

    For example, let’s say you pay $5/mth for shared hosting. That’s $60/year. That’s all the money you have to work with to make a profit. That’s not much. First you have to pay for the hardware, then the bandwidth. Maybe some software to manage it all. Then you have to pay your technicians. There’s not much left.

    Now we start to get into the interesting part. What about unforeseen such as power outages. Denial of service attacks. Bad hardware. Basically you have to assume that there will be some costs here. And remember that competent tech people aren’t exactly cheap.

    Now what about support costs? Email is the only way for $5/mth accounts. One phone call would wipe any profit you could possibly have for a year or more. And even email support might wipe out your minuscule margins. Never mind quick and competent support.

    Now being on the other side, getting managed hosting, I made sure my company used a competent hosting service. That didn’t mean the cheapest, but rather one that could offer good support (ie. had some margins to work with). And let me tell you, whenever we’ve had problems we’ve had quick support. And we’ve rarely had any issues! Well worth it.

    I’d rather pay for a good lunch any day than try to scramble eating the scraps from the floor. At least if I want to run a real business 😉

  2. What has always driven my choice between hosting companies, and the willingness to pay more for one host over another, is their committment to service. Most hosting companies are around the same cost given a set configuration of hardware, software, and connectivity levels. Its the service they can provide, whether it be by email, chat, or phone.

    For my money, hostmysite.com is the best. I have always had great experiences with them and any issues were resolved quickly – even at 2am, they answer in 2 rings, and the person on the other end of the phone is friendly and American. Its nice not having to struggle to communicate with someone who is obviously in India when its late at night and something goes wrong!

  3. Google App Engine is essentially providing free web hosting now (though with some notable limitations). You don’t have to pay unless you exceed a significant amount of monthly computing. I guess they don’t care about making money off the hosting because they already have a phenomenal network, and now they’ll be able to host more of the web on their own infrastructure. This means they’ll be able to search the sites that much faster, as well as collect tons of useful data about user traffic.

    In my opinion, people looking for cheap or free hosting is going to lead to 2 results:

    1. Aside from premium services, webhosts are going to need different motivations that only subscription fees (like collecting traffic data, etc.). They won’t be able to compete against companies like Google with $5/month subscriptions.

    2. There is going to be some major consolidation and fallout. Premium webhosts provide significant value to developers. But all the cheap shared hosts are going to get crushed when hosting offered by companies like Amazon and Google gets better and cheaper. Small webhosts simply can’t measure up against that kind of infrastructure investment and efficiency.

  4. of course people love free stuff. but there’s no such thing as free food. people can eventually get free web hosting thanks to their ISPs or from a startup (such as webbly) that would then try to upsell them.

    eventually, one day, when growth will stop in paid hosting, maybe web hosting companies will consider selling platforms and saas software and offer free web hosting. but there’s more than enough needs for paid hosting.

    and for steph above, here’s a post i just wrote for you:
    http://blog.iweb.com/en/2008/12/top-9-reasons-why-web-hosting-is-awesome/1576.html

    (yeah shameless plug…)

  5. @steph

    the number one cost for web hosting companies is electricity. iweb is located in quebec, canada, and thanks to hydro power, the province has the lowest price for electricity in north america.

    operations is also something you need to look at. think how Dell revolutionized the PC industry, everyone thought it was a commodity business and there wasn’t really anything to do. do just-in-time production, be agile, don’t stock hardware or resources you don’t need etc.

  6. @Heri

    Assuming you can optimized those fixed costs and keep them under $60/year (which is going to be hard), how are you going to also absorb the costs of technicians?

    I just can’t see how it’s done under $60/year per account. At least not without sacrificing other things. The most common of course being to overload the servers with ridiculous amounts of accounts. After that it’s by offering pretty low quality technical support…

    There’s no way you can do offer hosting for as little as $60/year without sacrificing something. I just can’t see it.

  7. Steph, the answer is VOLUME. Sell 10 x 60$/year accounts and you will not be able to affort paying for your costs. Sell 10 000 x 60$ accounts, now you probably have enough revenue to setup an infrastructure and hire some techs to have a profitable little business. Getting to a significant volume that will allow you to offer a competitive pricing AND make money while offering a service of acceptable quality level is not easy though.

  8. I think after people lose their web site from free hosting providers or they realize their site is full of ads by the hosting company that they will be glad to pay a little for the support and services.

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