Falling Prices in the Hosting Industry Mean Hosts Must Diversify

June 4, 2005
The past month has seen a torrent of web hosting providers come out with low cost and free web hosting plans for small businesses. Starting with Yahoo offering an $11.95 per month hosting plan for small and medium businesses the industry has seen a sudden and cumulative drop in price.

With research company IDC reporting that small businesses are spending more on hosting with an estimated 80% of firms to be online in the next three years the competition for customers is heating up as the industry also starts to consolidate.

Netcraft reported earlier this month that between Go Daddy, Dotster and eNom the three web hosts have gained 496,891 active sites in the first five months of this year. Go Daddy is now the 3rd largest host in the world with 678,261 active sites which is amazing considering they only started hosting in July of 2003.

Pressure from these big players and computer hardware’s steady march of progress, to the beat of Moore’s Law, are both driving hosting prices down.

What hosts are offering with their free and low cost hosting packages is also growing.

“Free hosting customers are no longer satisfied with simplistic features such as basic guestbooks, hit counters, file managers and surveys,” explains Doug Lewis of Vantage Internet, who helped launch the new features and design of the Websiteallies.com site. “Users now want the same full feature scripts that the paid hosting customer expects, such as Blogs, Web Site portals, shopping carts, professional photo galleries, customer support ticketing systems and much more.”

AIT’s CEO, Clarence Briggs, described their new low cost offering like this, “This is an ISP in a box; a self-contained business with dedicated resources. The value it affords a small business, particularly a reseller, goes well beyond the price.”

Just this month web hosts Whip Socket, Free Host, IntelWeb.Biz, 1&1, eNom, Okie Net, WebSite Allies, AIT, Hosting Concept and Hosting ZOOM among others have introduced a new low cost or free plan or increased what they are offering with their low cost plans. Some hosts are even offering a free year of hosting, perhaps, as a way of locking up customers during the current fall in prices.

Aside of giving away free hosting for a year and hoping prices go back up, the question remains for web hosting providers on how to differentiate themselves and stay competitive.

The research Microsoft in association with web hosting provider Cobweb Solutions recently released may have a good answer to the question. To stay afloat in an ocean of free and ultra-low cost web hosting, providers should look to providing new services like enterprise-level shared calendaring, contacts, document collaboration, instant messaging and mobile-enabled services. In other words, the research conducted by Microsoft and Cobweb revealed that small businesses are looking for better communications tools in order to operate more like larger enterprises.

82% of the businesses surveyed said they would pay $9 per month, per user, or more, for enterprise-level shared calendaring, contacts, document collaboration, instant messaging and mobile-enabled services. The survey interviewed over 5,000 small businesses, more than 82% of which have fewer than 15 employees. Most hosting plans for small business are around $9 per month so to nail (er, generously offer services to) these same companies for $9 per employee/user would certainly multiply a web host’s profits many times over.

One company, BlueTie, is hosting or licensing these kinds of services to Service Providers, including web hosts.

“Our hosting customers typically come to BlueTie because we can help them not only differentiate their offering as you describe but private label it to their own brand AND they can typically garner 60%+ margins on the offering (dependent of course on what features they offer and at what retail price -- many give email away for free ).

What we've seen quite honestly, is that even if Service Providers give a good email product away for free, they still see benefits to their business overall in the form of increased customer retention,” said BlueTie President & CEO, David Koretz, “Not only is email still the most heavily used application on the web but email is a very sticky applicaton. Once their customers use that email, store all of their important communications within it (as well as their contacts, schedule, etc.) customers are much less willing to switch providers, they're locked in.”

Web hosts can also look to the mobile phone industry for ways to differentiate themselves with phones now doubling as MP3 players, digital cameras, Internet browsers and text messengers. The market for phone web site content is very small now but should explode in the coming years.

In short, web hosts that can’t offer more than a fast connection to the internet at a low price may soon find themselves out of business.

Top 3 Hosts From Our Search

2BlueRay Concepts