Evolution of the Web Hosting Industry
Evolution of the Web Hosting Industry
Where is the web hosting industry now, and where is it going? Every industry goes through four stages of development; knowing what stage an industry is in, and where it is going, can help industry players make plans and decisions, as well as consider what they need to do to attract and keep customers. This article examines those four stages, and considers where the web hosting industry is in relation to them.The web hosting industry has been around for roughly ten years now. It has gone through many changes in that time, from apparently wild growth through the terrifying business climate caused in part by the terrorist attacks on the World Trade Center. Given this, people who work in the web hosting industry – and those who are served by it – might find it beneficial to take a step back and look at the industry’s evolution, to get a better idea of where it is now and where it is going in the future.
When studying industries, it is commonly accepted that they evolve through four basic stages: introduction, growth, maturity, and decline. These vary in length with the type of industry, and have speeded up in recent times because of the increased pace of technological development, which now affects so many different industries. For example, the introductory stage of development for the automobile industry lasted 25 years; we have since seen many high tech products introduced and then become obsolete in a tenth as long. Technological developments can not only speed up the evolution of an industry; they can also throw a mature (or even declining) industry back to an earlier stage of development, with changes renewing and revitalizing the products and services offerings.
With these points in mind, we can begin to understand why it might be helpful to know where the web hosting industry is in its evolution. To answer this question, though, we need to know what indicators characterize each of the four stages. Not surprisingly, many factors affect industries, and a sense of the numbers we get from these factors can help us figure out where an industry is in its development.
When trying to figure out what stage an industry is in, researchers and analysts examine something called value drivers. To quote an article by M. Eric Furlow of Furlow Consulting, “A value driver is a measure used to track financial and operational variables in a business or an industry.” While value drivers affect all industries, different value drivers affect different industries to different degrees. Furlow identified ten value drivers for the web hosting industry. Among others, these include churn and net gains; average revenue per account per billing; revenue/EBITDA per square foot of data center space (which reflects efficiency in use of resources); market size and market share; and free cash flow, which is the real amount of money left after all expenses are accounted for.
Value drivers are not the only indicators of where an industry is in its evolution, however, as we shall see shortly.
Evolution of the Web Hosting Industry – The First Stage: Introduction
In this stage, many if not most people aren’t yet fully aware of the industry or what it has to offer; consequently, industry players need to not only sell their wares, but teach people about them. (Contrast this with the gasoline industry). There is a certain amount of chaos at this stage because no standards have yet been set, and/or they change frequently. Since the industry is just getting started, not many people are in it yet, which makes this an excellent time for industry players to increase their market share since they have so few rivals.
As you would expect from the lack of competition, prices are high. Another factor keeping prices up is high expenses; it is costly to invest in a new business, even more so when you can’t simply get what you need “off the shelf” (this holds true for both human skills and physical equipment). When a company doing business in an industry in this stage of development needs an infusion of cash, it will look to venture capitalists, angel investors, and Wall Street. Banks, which are basically conservative, will usually not want to get involved.
The risks to any new business in an industry in this stage are high, but so are the rewards. If you have come along with the right product or service at the right time, you could receive a major pay-off. The web hosting industry’s introductory phase coincided with the early days of the World Wide Web (about 1995). Thus, it was driven to some degree by the dot-com boom.
Web hosting companies and dot-com firms drew to some degree from the same talent pool. If you were a system administrator, you might prefer working for a web hosting company, taking care of hundreds of sites (usually with help), rather than working for a dot-com and being responsible 24 x 7 for just one site, all by yourself. Without the resources to handle their own web hosting, many dot-coms had to outsource the hosting of their websites. Often, the same ISPs that provided Internet access to dot-coms were the first ones to enter the web hosting business, and they had large infrastructure costs to recoup. But the industry was poised to change.
Evolution of the Web Hosting Industry – The Second Stage: Growth
Near the end of the first stage, initial public offerings of stock increase. This heralds the second stage of an industry’s evolution, which is growth. IPOs become common; there is a shift as Wall Street becomes more involved in the industry, angel investors and venture capitalists somewhat less so. This is an extremely active and challenging time for any business, because lots of companies are getting into the industry; consequently, this is the time when the number of competitors is at its highest. Interestingly, so is merger and acquisition activity. Even so, the total market is still growing, so there is a lot of room for companies to capture share in a larger market.
Prices start coming down, as companies gain more customers and can thus spread out their costs some. You would think this would be a less risky time for many companies in this industry, but in fact they start taking larger risks than before, because capital is more available than in the first stage, and growth is more rapid. Both of these factors help to offset some of the risk. By taking risks, I don’t simply mean investing in more machinery or people to expand the company; in the growth stage, there is still significant innovation going on.
Arguably, the web hosting industry is currently in this stage of development. Those in the industry need to be very alert, watching for advantages – because this stage can end very quickly. Late in the growth period, mergers and acquisitions continue, but their nature changes; you see more vertical integration. In the web hosting industry, one example of this would be web hosting companies buying backbone providers, or vice versa. A company making such a merger or acquisition would gain advantages in cost/control over supply, or distribution.
If you’re a sharp business thinker, you’ll see that this is actually the best time for a private company to sell – if it is timed correctly. When the growth stage of an industry’s development ends, it can end quickly. Look for huge drops in stock prices – fifty percent or sometimes more. There are other signs as well; when innovation slows down and there is plenty of supply, the industry has reached the next stage of development.
Evolution of the Web Hosting Industry – Stages Three and Four: Maturity and Decline
At the mature stage of an industry’s evolution, there is relatively little difference between the products offered by the big players. Think of the PC industry as an example; how much difference is there between computers sold by Dell, HP, and Lenovo, who purchased IBM’s PC business? Incidentally, if those names are familiar, that’s another sign an industry has reached maturity: with mass market saturation, the names of the major players in the industry become commonly known, practically “household names” in fact.
With customers perceiving little difference between the players, churn increases. Prices become more elastic, because that is now the main competitive difference. As a result, businesses experience lower profit margins. These are all symptoms of the commodity effect, which Furlow says is “the most feared of all signs in an industry.” Other flags to watch for include a significant decrease in the number of mergers and acquisitions, with a few larger deals still being made; public companies starting to miss their numbers on Wall Street; and relatively few changes in technology standards.
It is true that the web hosting industry went through a difficult period after 2000. Before that, customers were most concerned with performance from their web hosts; would they stay up, would they deliver content fast, and how fast? We even started seeing content delivery networks crop up, such as Akamai and Sandpiper, to fill this need. But after 2000, the industry found itself with an excess of capacity. In that same year, the dot-com bubble burst; that industry contracted, and web hosts who had overcommitted were hit hard. Then came the terrorist attacks on September 11, and the house began to fall apart, with a number of hosts declaring bankruptcy. Suddenly, customers of web hosting companies were concerned less with fast performance, and more with whether their web host was going to continue to be around. After all, they had their own problems to contend with.
These are signs of an industry in decline. The hallmarks include oversupply, products and services priced below cost (which is unsustainable), and churn overtaking customer adds. Bankruptcies become common; mergers and acquisitions, on the contrary, all but disappear. If Wall Street leaves the industry, you can be sure that it is in decline.
So if web hosting went through so many of the signs of decline, how can I say that it is in a growth stage today? The answer is that some industries can move back to an earlier stage due to technological innovation. The prime example of this is the cable industry. It had reached a mature stage of development delivering cable TV. Then, thanks to technological advances, all of a sudden the same wires that brought premium TV to the home could be used for broadband Internet access, voice over IP, and anything else the companies can figure out to send. As a result, cable companies were able to create bundles of services that slowed down customer churn and helped to differentiate them from their competitors. With the economy improving, many web hosting companies are engaging in a similar strategy, offering a variety of package deals of services at different price levels to help generate customer loyalty.
Article Source : Evolution of the Web Hosting Industry
Build a Web Hosting Brand that Sells
Web hosts must never undervalue their image. Image and brand power are absolutely critical to business, as customers often don’t have any other way to initially gauge the value of a web host. Mike McEwan covers a series of things to help create brand recognition in the hosting industry.Needless to say, there is a lot to be said for any business’s corporate image. Companies like Microsoft and McDonalds rely heavily on their brands helping to sell products. But to you, the web host or reseller, image is ten times more important. The cliché is especially true for you: image is everything.
Microsoft has built their image from strong (or weak, depending on who you ask) software packages that everyone uses at some point. They are so popular that almost everyone who is considering a Microsoft product has already used one. They know the power and ubiquity of the company. McDonalds has built brand recognition through gimmicky television commercials, placing millions of stores all over the world, and pumping the smell of grease and burning fat out to streets of hungry drivers. Obviously, none of this is part of the web hosting world.
To boil things down to the simplest form, all that prospective hosting clients see of your company as a little html and a little Photoshop. You are a webpage, not a human being or a physical store. Web services like hosting are intangible compared to other kinds of services. Users don’t get to see the service in shrink wrap, and they often don’t get free trials. Customers rely on appearances and reputation to discern which companies will keep their web pages online. If your site looks unprofessional or does not provide what browsers expect, you have lost them already.
Part of the trouble for web hosts who have not built brand recognition is that there is such a high market saturation of hosts. Customers have a million choices, and it can confuse them. Some users care most about the bottom line, and they will experiment with lesser known hosts to get better deals. However, many just want a promise of stability and performance, and they tend to gravitate to the several hosts that have formed a strong brand.
There are a few notable things you can do to assure you are on your way to winning clients. Let’s take a look at a few.
Build a Web Hosting Brand that Sells – Internet Brand Recognition Basics
Image is your hosting company’s identity. Some customers have a hard time telling the differences between different brands of web hosting, you need to help them. Make your business both distinctive and easily found.
First, it’s business sense that your company should not be a “web host.” There are hundreds of identical web hosts providing vanilla, generic service. Competing with a generic business model is extraordinarily difficult compared to specializing in a profitable or untapped market. Be a “dedicated web host” or provide “affordable hosting” or “hosting for college students” or even the “best host for ecommerce.” You should have defined a demographic before you even start. If you don’t stand for anything you can’t be recognized for anything.
This demographic will help you define other important parts of your business, give it personality. If you’re building a hosting business for college students, you will know to form the site’s layout and graphics with youthful or fun themes. Your site could be designed around images of students socializing or partying, if you want to go the route of looking like a social center. For ecommerce hosting, pick something entrepreneurs want to see. You could photograph somebody reclining in an office chair next to a giant safe. Cheesy, yes, but it makes a point.
This personality has probably given you ideas for a logo already. Just brainstorming about specific your market segment can stir up a lot of images for a logo. The trouble is picking one. Make sure the logo will appeal to people you are trying to attract.
Avoid basic logos that are a jumble of triangles and circles. As tempting as geometry might be, use something more memorable and that has more personality. Many find animals helpful in designing logos. Since the visitor to your site cannot see you in person, the logo is what identifies and defines you. Hopefully, it can provide a level of trust to the browser. After you have fashioned something or hah a graphic designer Photoshop you an eye-catching image, be sure it is displayed prominently on the top of all your pages and in all your ads. Repetition forms your image.
Your logo is distinctive and will form an image for people to trust, but you also want them to know who else they can trust through your business. Use brand association to show what other recognizable companies are working with you or that you are using. For example, if the hosting company uses or specializes in Microsoft technologies, be sure that visitors to your website can see that visually. Microsoft’s logo on your page will help to make you look trustworthy. Perhaps your business hosts a significant client. Provided they let you, put their logo on your site declaring that you are the proud to host their site.
Your company could also benefit from a tagline or slogan. Sure, your slogan will never be as famous and recognized as “Just do it,” but it helps to define your attitude. You logo probably can’t portray everything you want to be recognized for, and a short piece of text can help here. Keep it short and simple, and make sure it helps to build on your website’s personality. This should also be used on all your pages, not to mention your ads.
Build a Web Hosting Brand that Sells – Advertise, Duh!
If you already have a web page with personality and a demographic, you need to push that image outside just the webpage. Advertise. There are so many ways to do this, and only some are really effective for a host.
Not long ago, a web host proved that nothing sells anything quite like a video of a woman falling out of her shirt. Television commercials are a new territory that hosts have just begun stepping into. GoDaddy spent an incredible $2.4 million to air a 30 second commercial during the Superbowl this year. Their ad featured a bubbly girl with a shirt that just couldn’t quite stay on. GoDaddy shoved weird humor and a pretty girl into their ad, showing plenty of distiction from other web hosts. They also assumed right that printing their name and logo across the girl’s chest would help guys to remember them. You can see this effective Superbowl ad on GoDaddy’s page of TV advertisements.
Unlike earlier websites that advertised during the Superbowl and quickly died afterwards (like Lifeminders.com who advertised in 2000), GoDaddy said the money for the ad was a savings that didn’t need to be recovered. People still criticized them for advertising so expensively when they could have put that money into many more ads that cost less, or even given away free hosting for a period of time.
Getting high rank in search engine result pages can draw a lot of traffic. Potential customers may search for broad terms like “web host,” but when you pick keywords to optimize for keep in mind those popular terms are hard to rank highly for. Pick keywords that speak about your location or demographic. Some might search “Miami web host” or “US web host” to know their host is not going to be on the other side of the word. And of course, “ecommerce web hosting” and “business hosting company” may be other good choices if that’s your specialty.
Do not be alarmed if after a few weeks you have made no progress on the search engines. Sometimes it can take months between the time search engine spiders find your site to the time they begin listing it in their search results. This is the sandbox effect. To facilitate being indexed, you can submit to the search engines that allow people to submit their pages freely. Google, for example, lets people submit whole sitemaps.
There’s much more to optimizing than picking these keywords and submitting to search engines. You may consider hiring a specialist to do the work, or try going to sites like SEO Chat and learning the search engine optimization trade yourself.
It also doesn’t hurt to get listed in host directories such as Find Web Hosts and HostDirs. An open directory such as DMOZ might not get you a lot of traffic on its own, but it may help you rank a little better on search engines.
A short-term solution that has become very popular is Pay-Per-Click (PPC) campaigns. This is best used in the sandbox period before you show up in the normal search results. For a long term solution, PPC is very expensive and does not bring the amount of visitors that simply ranking highly can do. It is also becoming less effective and more expensive because so many hosts choose to advertise this way. Common host searches on Google and Yahoo! bring up many sponsored links, and it can be a challenge standing out in the crowd.
For PPC, look at multiple advertising venues. Google has an two different options you can use. Yahoo also has sponsored search. Also, don’t discount trying a smaller company like Ask. If you do choose PPC, do not advertise on only one service. Any one PPC company reaches at a maximum 35% of the search market. Using Google and Yahoo! together will get the best exposure you can really expect. And remember that optimizing for search is a long term goal, while PPC is expensive by comparison.
Build a Web Hosting Brand that Sells – Customer Satisfaction and Your Search Engine Image
Perhaps the most revealing aspect of a company is how satisfied their customers are. Good support is worth more to customers than promises of unlimited bandwidth or webspace. After all web design and advertising is done, it is this that forms a strong brand and reputation.
Word of mouth has a heavy impact on buying decisions. It’s perhaps the strongest thing to convince a person to use or avoid a host when the person doesn’t have experience with the company. It speak volumes that people can get cheap unlimited hosting for around $1 a month, but they often choose to use established companies with reputations of helpful support staffs. This is something to be taken very seriously.
In an interview with HostSearch.com, Brent Oxley (President of Hostgator) says:
“One unhappy customer is worth the weight of 1,000 satisfied customers in terms of how they can affect future business, so we strive to keep as many people happy as we can. We may receive 500 letters of praise in a month, but it is that one letter of dissatisfaction that keeps us up at night wondering how we can make things better. While it may never be possible to please 100% of our customers, we are going to run this business as if it is an attainable goal and will strive each month to inch closer to that mark.”
Most web hosts rely on email support. This is impersonal and only widens the gap between your intangible product and the clients. Make your company’s personality stand out by providing a variety of support options, including instant messaging and especially phone support. Give the support phone number to everyone so they can test the support before ordering. Obviously, make sure the phone is picked up quickly and preferably by a human being.
Finally, don’t passively let word spread about your company; facilitate it. Obviously, people will use search engines to research your business. You need to use search engines to track how people are talking about your company. Hopefully your feedback will all be positive, but act to resolve outstanding complaints. Finding a very angry customer and publicly issuing a $100 refund will cost far less than losing all the potential customers who find his complaints (not to mention, it can work as a bit of advertising for your company). As a side note, I’ve seen companies address complaints on websites by arguing their position and saying the problem will be resolved for future customers; even this does not go over very well (often looks a little sleazy) without issuing a refund or formal apology to the person who had a problem.
Also, load the search engines with information that makes your business look good. Don’t be afraid to have the CEO do an interview with a web hosting news site. You could also offer 6 months of service free to one of these sites for them to review your service. Having positive reviews across the internet will be great for Google and Yahoo! browsers to find when they type in your name. It’s especially important that these are found on third party sites so the potential customer feels more that the article is honest.
This information should help give your web hosting or reseller business a direction. No one aspect of this process is most important, so try to weight them all with extreme importance. Good luck finding your customers.
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Build a Web Hosting Brand that Sells