Why is the cost of web hosting increasing?
I have always farmed out WineCommune's web hosting. It never made sense to high hardware experts, database administrators, and server managers when they can be "rented" as part of a hardware lease at a reputable server company. When I started the company in 1999, outsourced servers and bandwidth costs were at a premium. The internet revolution was in full swing and startups were paying top dollar for servers.
By 2000, however, hosted server costs started to plummet. A combination of factors led to a precipitous drop in the cost of outsourced equipment:
Industry consolidation combined with a new wave of startups are conspiring to push pricing back to 1999 levels. Commodization has been undermined by a new generation of dual core and 64 bit chips that do significantly improve server performance. Go back to the same hosting companies (the ones still in business) and try to get a deal now and you are likely to be out of luck.
google saw this trend and was prepared. They view their hardware setup as a competitive advantage and crucial to their core business. As a result, they have been building their own data centers around the world and building their own hardware. In fact, one researcher believes they are the 3rd largest computer assembler in the world - behind Dell and HP.
Most Internet business have a high gross margin so incremental server costs will not disastrously affect bottom lines. But, controlling server costs can give a business an advantage over competition by keeping prices low when others are raising theirs.
By 2000, however, hosted server costs started to plummet. A combination of factors led to a precipitous drop in the cost of outsourced equipment:
- server overcapacity caused by a glut of new facilities coming online
- bandwidth overcapacity caused by too much new fiber coming online at once
- drop in demand caused by the beginning of the shakeout of unprofitable dot coms
- commoditization of the hardware and software used to run these machines
Industry consolidation combined with a new wave of startups are conspiring to push pricing back to 1999 levels. Commodization has been undermined by a new generation of dual core and 64 bit chips that do significantly improve server performance. Go back to the same hosting companies (the ones still in business) and try to get a deal now and you are likely to be out of luck.
google saw this trend and was prepared. They view their hardware setup as a competitive advantage and crucial to their core business. As a result, they have been building their own data centers around the world and building their own hardware. In fact, one researcher believes they are the 3rd largest computer assembler in the world - behind Dell and HP.
Most Internet business have a high gross margin so incremental server costs will not disastrously affect bottom lines. But, controlling server costs can give a business an advantage over competition by keeping prices low when others are raising theirs.
posted by Michael Stajer at 5:53 PM
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