I see a lot of requests on this forum about information on starting a hosting business, often with limited to no budget and limited technical experience. I'm making this post because as someone that started out 4 years ago I want to maybe spare some pain. So, here it goes:
The Hosting Market
In the early days of the Web, e-commerce was the new promise of technology, and businesses scrambled to get online before thier competitors. They were willing to pay any price to those few companies that had the resources available to get them online. As the dot-com bubble grew, many hosting companies branched out with affiliate programs and reseller offerings. These became very popular as many dreamed of easy money to be made on the Web. The few resellers that made good profit eventually bought into thier own data centers and offered reseller plans of thier own.
Eventually there were literally thousands of hosting companies to choose from, some selling on quality and some on price, and some still to special niche markets. The dot-com bubble burst, and recently e-commerce has declined due to the threat of identity theft, virii, scams, and other nasties. Many companies continue to offer reseller and affiliate plans, plus the option to colocate your own server at thier facility. Often these companies do nothing BUT reseller plans (look at EV1Servers for example).
I've said all that to say this: The market is saturated. From penny hosts to hundred dollar hosts, hosts with feature A and hosts with feature B. there is most likely somebody that caters to most markets out there.
So I Should Forget It?
If you only plan on offering hosting, I'd say good luck, I'll even sell you a server or too. Point is, your chances for success are very slim. A no-name brand trying to break into a highly competetive market will have to sink a LOT of money into marketing and support. The best way to get into hosting is to ease into it, and offer it as a value-added resource to your current offerings.
Who Stands to Succeed?
Quite honestly, the already successful. If you're offering Web design services or some sort of computer sales/repair service and already have a decent customer base to pull from, you'd be well off to get a reseller account and start offering basic service. As the account grows, migrate to a bigger plan, then a bigger one, then maybe a dedicated server, and for the very lucky, in a few years a colo. Web designers especially stand to do well here, as we are often tasked with finding the client a host anyway, and sites on your own server are easier to deal with when on maintenance contracts.
Okay, I'm Ready. What Do I Need?
First off, you'll need time. Plenty of time. You have a lot of homework to do. You need to find a reseller account that offers plenty of space and bandwidth, and a rich feature set for a decent price. That doesn't always mean a cheap price, but a FAIR price. Do some research on a potential host. Read reviews, check on thier support options, and always compare prices. There are plenty of companies out there that just want your cash, and will rape you with over charges.
First step: Figure out what you want to offer. Get some plans drafted together, don't worry about setting prices yet. More research involved here, as you need to find out what your target client pool needs. Do they want Linux or Windows hosting? PHP? ASP? MySQL? PostgreSQL? MS-SQL? There are a lot of options. I highly recommend sticking to what you know. Web designers, stick to what you develop with. It's pointless to try to sell your customers Windows ASP hosting if you develop in PHP!
Next, figure up what your BASE costs will be for your plans with whatever company you want to work with. For example, if you can get a package at $75/month with 80GB space and 500GB bandwidth, and you want to offer a plan with 500Megs and 5GB bandwidth (your smallest plan is best to use on these initial calculations), your base cost would be around $7.60 for that plan. Now, figure up how many you would need to sign up to break even. In this case, 10 accounts would break us even at $76. Obviously we don't want to just break even, so we figure up fair retail price for our $7.60 plan. I'll leave this up to you.
Now we know what we want to offer and how much we need to charge to turn a profit. Please bear in mind that you will NOT magicly get all 10 customers you need to hit the break even point in the first month! It takes time and marketing. This is why already established businesses do the best, their other offerings can offset the losses of hosting until it picks up.
Okay, Now What?
You need a way to accept orders and process payment. Remember this: image is VERY important on the Web. People will likely not sign up if you take orders by email and request PayPal payments. It's not professional, and it makes you look sleazy. You need to automate orders. If customers have to wait even a couple hours to start using thier accounts many will turn away. There is a lot of software available for this, and what you use depends on what type of setup you have. Unless you're an excellent programmer you will likely have to spend some money on software. For payments, PayPal isn't that bad if you can accept other forms of payment, too. People hate having to sign up for another service just to send payment, thus PayPal's bad image as a sole processor. Look into other options, but I wouldn't advise jumping straight into a full merchant account until you're turning over some business and the costs will be justified.
I'm Ready! Why No Signups?
Because you're a no-name with no marketting. You need to advertise, locally at first and on sites that are related to your market. For example, if you target hosting towards gaming clans, buy ad space on gaming review sites and gaming related webcomics. You have to spend a little to make a little. Otherwise, if you're already doing other tech related work, probe your current clients. They're more trusting if they already have a GOOD business relationship with you.
I can't stress this enough: Do NOT expect to turn a profit in the first 6 months to a year unless you do some serious marketing! It can take that long or longer for you to become known!
Anything Else I Should Know?
Yeah, remeber that I said you needed time? It still applies. You need to be able to promptly respond to support issues and keep on top of your own stuff relating to software updates and security patches. You need to run backups and security checks. If you don't, it WILL come around and bite you. All it takes is one person to have a bad experience with you relating to support or data integrity and it could be over for you. If a disaster does occur, you need to make sure you're knowledgeable enough to react! You can salvage customer relationships by alerting users and reacting quickly to solve an issue. Slow reactions and/or failure of communication will cause clients to jump ship real quick. Make SURE you know your stuff! Know the software on the server inside and out, and know your own plans, options, and pricing. It's really humiliating to be asked what you offer and having to tell them you can't remember right away. And it looks bad on you. Again, image is VERY important. In any technical field, you must give users a reason to trust you.
Thanks! Anything Else?
I didn't cover a lot, actually. There's still the process of applying for your business, business types, etc. There are a lot of legal options you need to consider. I recommend consulting with a small business lawyer to draft up contracts, terms of service, etc. May seem like a pain, but trust me they can save you from lawsuits later.
About the Author
I am an owner of a Web design studio and Systems Administrator of the hosting branch of same studio. I started the design firm 6 years ago, and the hosting side 4 years ago. I have several employees now, although our hosting side didn't bring in a profit until this year.
June 24th, 2005, 2:21 pm
