I had started a hosting service as an experiment a few months back. Though I knew that it wasn’t an easy business to run, I just wanted to do it because I wondered how the business worked and wanted to learn more about it.
Hosting services are in high demand, many companies are targeting this market, and they pay huge affiliate commissions. I never understood how they could pay such huge commissions esp. when there are so many overheads. Starting and running my hosting service for a short time helped my understand the intricacies of the business model.
Here are some of the things I learned:
1. More than 50% of the Customers Never Use it
Yes, if ten people sign up for a paid hosting account, 5-7 people never host a website on it. It’s like subscribing to a gym, but not using it. And they do not ask for a refund also because they are busy and think they will get around to it later. The charges are not THAT high and haggling with the support team to ask for a refund is a pain.
When hosting services promise unlimited hosting or large resources for every account, they cannot run the service if everyone who signed up used it to the full extent. Just a like a gym will not run if everyone who signed up showed up every day.
It averages out. 50% don’t use. 25% use minimal resources, and the rest 25% will justify the cost by using it entirely. The people who use it to its full extent and subsidised by the people who don’t use it.
2. Customers Forget to Cancel Their Unused Accounts
A lot of hosting companies make a LOT of money from people who forget to renew their hosting accounts. On top of not using their accounts, they also forget to renew it, their finances are a mess, and they never get around to it. Though it is unethical, it is not illegal.
A lot of subscription services keep charging customer’s credit card every month, and customers do not notice the small charge buried inside several other charges. This doesn’t happen in India that much because RBI doesn’t allow automatic charges to credit cards without an additional authentication step.
3. Having Good Customer Support Costs a Lot
Some hosting companies charge significantly higher than the “popular” hosting services. Companies that charge more can provide good support. But the market is always ready to buy cheaper services. Companies like GoDaddy, HostGator, BigRock, etc. have taken advantage of the market need and they provide low-cost hosting services.
In such cases, they cannot provide good support, because good support costs a lot of money to run. A lot of people complain that the support is not good, but they are a small percentage of the overall customer base. And the big part of the customer base doesn’t even use the hosting service. Their marketing footprint is very broad, and people are enticed to sign up for the service even at the risk of very poor support – because the prices are irresistible.
End of the day, I’ve learned that you can provide excellent hosting service only if you charge more than the average hosting company – and you will have a small but happy customer base.
With higher revenues you will be able to invest in support and keep your customers happy. All the cheap hosting services are just Ponzi schemes which run on economies of scale, or rather economies of non-usage and poor support.