Is shared hosting good B? (1.Viewing)

I have recently been offered to invest in a small shared web hosting business (A good friend from the past who has stayed active online while I have not). I am sort of interested, but I can't find much information online. I have been somewhat active for the last year or so, but I have a gap of about 15 years of online inactivity, so I do not have a decent grasp of how things are.

While numbers make sense in his business, my main concern is how growth looks in it. Would anyone be willing to pitch in some numbers?

Thanks!

Don't do it, the big boys will eat you alive, web hosts come and go, barely any small hosts survive long term unless they get a buy out.

A web host has to be fully redundant, if a server goes down another must be able to take its place. Real redundancy means you need duplication of all systems including the data centre itself. Cost to do web hosting properly are astronomical, it only takes one outage to lose a large portion of your client base.

I've been following the web hosting industry for 25 years. Here are how things are in a nutshell:

• when properly managed (hardware, software, support), web hosting is a stable business with very healthy margins
• shared hosting, out of the whole lineup of hosting products, while commonly the cheapest product, is also most time consuming (most clients per server — more clients, more support requests) with the least profit margin.
• don't invest in a hosting business if your friend's idea is to only compete with one product (shared hosting). At minimum, you want to also offer VPS/dedicated servers where the profit margins are higher, and some of the clients have products to upgrade/grow into.
• this business is all about support, as it is also the only competitive differentiator on the market. Anyone can buy a server and install the same software, it what comes after that makes a difference to a client.
• web hosting is not a get rich quick kind of business. You need to hustle, stay always available, have immense patience, and be prepared for very slow initial growth.
• competition is brutal (there are thousands of other companies offering exactly the same product as you, all over the place), making PPC rates (AdWords) so high that if you were thinking to grow faster through advertising — you can scratch that one off your list, unless you have cash to burn. That's not to say there aren't organic ways to make yourself stand out.

Artashes said:

I've been following the web hosting industry for 25 years. Here are how things are in a nutshell:

• when properly managed (hardware, software, support), web hosting is a stable business with very healthy margins
• shared hosting, out of the whole lineup of hosting products, while commonly the cheapest product, is also most time consuming (most clients per server — more clients, more support requests) with the least profit margin.
• don't invest in a hosting business if your friend's idea is to only compete with one product (shared hosting). At minimum, you want to also offer VPS/dedicated servers where the profit margins are higher, and some of the clients have products to upgrade/grow into.
• this business is all about support, as it is also the only competitive differentiator on the market. Anyone can buy a server and install the same software, it what comes after that makes a difference to a client.
• web hosting is not a get rich quick kind of business. You need to hustle, stay always available, have immense patience, and be prepared for very slow initial growth.
• competition is brutal (there are thousands of other companies offering exactly the same product as you, all over the place), making PPC rates (AdWords) so high that if you were thinking to grow faster through advertising — you can scratch that one off your list, unless you have cash to burn. That's not to say there aren't organic ways to make yourself stand out.

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Thank you for the detailed insight. If you'd be to estimate, what do you think the initial investment would be to set up a new business ?

He's idea is to take over half the business or to start a new one where we both join in half. Over my lifetime, I never had partners, my offline business is not built with partners or associated with anyone, as I am a firm believer that everyone has a different agenda and it's hard to come across.

Rdt said:

Thank you for the detailed insight. If you'd be to estimate, what do you think the initial investment would be to set up a new business ?

He's idea is to take over half the business or to start a new one where we both join in half. Over my lifetime, I never had partners, my offline business is not built with partners or associated with anyone, as I am a firm believer that everyone has a different agenda and it's hard to come across.

Click to expand...

Most people in the industry start with little to no investment. They launch with what's called reseller hosting, which gives them a cheap plan that allows to sell X number of shared plans under it. Most reseller plans are also backed by tech support provided by the parent company, so it runs almost like a white-label shop with very little intervention by the reseller himself. You then, of course, completely depend on that company's management/performance.

However, if you and your friend are serious about running it professionally, you'd want to take charge of your own customer service/support, to start leaving your own mark on clients you attract. After all, word of mouth is one of the most powerful and essential ways to grow organically. At minimum, that requires investing in a higher performance VPS with root access that would allow you to customize it to your liking and market demand. That will probably run between $50-100/month, plus software expenses, like merchant account, WHMCS, cPanel or DirectAdmin (these are most popular solutions, but there are also cheaper alternatives on the market that customers are less familiar with). Managed hosting option would usually cost more than unmanaged.

Budget-wise, it is impossible for me to give you an answer without knowing what you are working on specifically, what markets you'd like to go after (USA, Canada, etc), if you'd be growing organically or open to marketing/acquisitions along the way, etc etc etc. I'd say if you want to try but not risk too much, without knowing anything about you or your friend, I'd say a budget of $300-500/month would give you a taste for the industry, a tiny bit of room for marketing experiments, without getting too nuts about it. Do it and reassess where you are in 12-18-24 months.

Of course there are also people who'd come into the market with strong skills, an experienced team and fresh ideas, and they may have more aggressive plans, complex cloud solutions, possibly even lined up customers that'd enable them to get to breakeven point as quickly as possible. In such cases they may inject tens of thousands of dollars just to establish their roots.

Partnership in web hosting business, especially during early years, works best when both of you bring something to the table. For example, your friend is a techie and can do most server admin work, it would be amazing to have someone on the sales/marketing front doing the hustling and promoting. I reiterate: this business is so painful in early years, that if one person is doing all the work and the other one doesn't do anything, it almost always leads to a frustrating situation.