Ask YC: Providing Hosting Services?

[davidw]

Hi,

A friend and I are talking about doing some hosting for a niche industry where we know some people. We'd be reselling a machine based somewhere like Layered Tech, which has these requirements for resellers:

http://www.layeredtech.com/dedicated-servers/resellers.php

Has anyone ever worked selling hosting services? I don't imagine the margins are good, but it might not be something bad to get a bit of money if it's steady business without a lot of hassles. What kinds of software is out there for billing and managing the business?

We're thinking a pretty small operation... 10's or at most 100's of clients. Worthwhile?

[bkrausz]

Terrible business...1&1 and similar hosts killed all of the margins.

I was basically given a hosting business with 50 clients when the owner didn't want to maintain it anymore. Even paying another company to do support, we had so many issues: credit card chargebacks, customers complaining about things that aren't our problem, server issues. I think at one point I figured I would be making less than minimum wage with the time I put into it (with no hope of growing out of that). We eventually sold for a paltry amount just to wipe our hands clean of it.

The only time it is worth it to do hosting is when it's in conjunction with another service...for example web designers often do hosting because a) they work it into part of their contract with a decent rate, instead of the insanely low-margin rates online now and b) since they made the website, if there's a problem they have fewer people to deal with (i.e. vertical integration).

[thorax]

I tried half a year program of doing small game server rentals instances. Not reselling, exactly, but providing slices of (good-priced) dedicated servers.

Very low margins, lots of support headaches, lots of competition.

It probably depends on the strength of your niche. We had a semi-big brand name to bank on, and, even if we had thousands of customers, it wasn't going to pay off much in the long-run because of the market saturation and low profit.

If you have some really solid provisioning technology, a strong niche, volunteer support staff (or a PROVEN automated support model), then you can shave some more profit out of it and make it successful.

YMMV, of course. The best entrepreneurs succeed where others fail, so you may want to pursue it.

[dkokelley]

You might try reading Matt Heaton's blog (http://mattheaton.com/).

He's the CEO of bluehost and hostmonster (which I use) and he provides a lot of insight into what the industry is like.

I'm sure there are many other good hosting blogs out there too, which you could find via google.

[thinkcomp]

It's kind of a horrible business. Billing is a nightmare (I wrote my own software so that it integrates into everything else that I bill for), clients can be demanding and not really all that technically-savvy, and you have to be constantly on guard for security problems. I'm running tail -f of Apache logs non-stop, and I've caught enough problems with client sites (including sites of some prestigious institutions that you've probably heard of, and wouldn't think had issues) that it's actually worth doing, crazy as it sounds.

Reselling a server that you don't have physical access to is also risky because if anything happens, you're at the mercy of the technician on the phone. Sometimes they're great. Sometimes you have to find a new ISP the same day and transfer 8GB of data across the country because you have no other way to recover a dead server.

It's a perfectly competitive market--theoretically, anyone can put a hard drive on the internet, just like theoretically, anyone can grow corn. That means it's a buyer's market. Be forewarned.

[davidw → thinkcomp]

Ok, nice reality check...thanks! We were actually hoping to do setup and afterwards have people run their own servers (much as LT themselves do).

I don't think it's a perfectly competitive market from a higher level point of view:

http://www.welton.it/articles/webhosting_market_lemons.html

but in terms of prices it certainly is.

[cstejerean → davidw]

You might have better luck with just referring your contacts to LT and getting a referral bonus. You certainly can't compete with other providers on price (chances are you're a lot less efficient so your costs are higher) and definitely can't compete on service (since it seems LT will handle all issues, or your clients will call you and you'll have to call LT).

The only advantage I see is that you know the clients and they might trust you even if you can only provide less service and for more money than other alternatives.

The web hosting market isn't as bad as it sounds. Sure, there are hundreds of providers, but just ask around and you'll see the same handful of names coming up over and over again. The remaining are often people like you that decided to get into hosting to make a little money.