Tuesday, January 18, 2005

Bootstrap Yourself Into Web Hosting

I often get inquiries from entrepreneurs looking to get into the potentially lucrative web hosting business. Well, why not? Just look at pictures of the server rooms at some of the bigger hosts and you can just smell the income. Especially since once an account is set up, most users will keep paying hosting fees month after month on a shared server that may already be paid for.

Now the fly in the ointment. While there are nice incomes to be had each month, there are also hefty expenses in those same months. If you lust for the big time with racks full of blade servers, battery backups, diesel generators to backup the batteries and multiple optical carrier backbones to the Internet, you better be well funded. The bandwidth alone can run into the tens of thousands of dollars a month. Just how fast are those customers going to come online to offset the expenses?

The megabucks involved in big time web hosting can be daunting. So much so that many a good business dream has been shattered before it even got going. But, there is another way to get into the hosting game for probably fewer greenbacks than you have in your wallet right now. Curious?

What I'm talking about is reseller web hosting. It's a form of private branding, where somebody manufacturers a product with your name on it. In this case, you private brand hosting that is actually provided by a larger company that has the resources for those hundreds of servers and OC3 or OC12 backbones. With a reseller account, you get a shared hosting account with a certain storage and bandwidth limit that you can further subdivide into smaller accounts. You then sell and manage those accounts. The difference between what you pay for your reseller account and the income you generate from all the accounts "you" host is your profit.

Yeah, the reseller approach lacks the glamour and excitement of standing in the server room, watching the LEDs flash and listening to the disk drives whir. But, if you can live without the pizzazz while you get started building your business you can start now without the financial terror of writing monster checks each month.

Here's an example of what I mean. Right now a really good reseller account is going for $29.95 a month. For that you get 5,000 MB of storage and 50 GB of bandwidth per month. Sounds like any high end hosting account, right? Yes, except with this one you have the ability to host up to 100 separate domains, each with their own control panel. You get a master control panel to run the whole operation and you can make a custom startup screen with your logo that your customers will see until they load their own index pages. Each account gets as many email and MySQL databases as you care to give them. They also get a library of CGI scripts that include content management, Wiki, blog, auctions, guest book, photo album and so on.

So, $29.95 a month divided by 100 domains is .... Wow! 30 cents an account per month. What can you sell an account for? $1.99 a month? $4.99? $9.99? If you provide web designs for your customers and include a bit of maintenance, a lot of small businesses would consider $25 a month or even more quite reasonable. You can just sell accounts to people who don't want to pay much for hosting or add personal value to make the service worth more. That's your call and your value added as an entrepreneur. You can also sell them a domain name through the same host and jack up your profits even more.

I'm suggesting that starting small and growing as your income rises is a more likely formula for success than spending a ton of money before your first customer is landed. You can always upgrade to your own PC server running Apache and connected via a dedicated T1. Then grow into server racks and multi-homed OC3 lines, plus the big diesel generators on the roof, of course. Just put all of that in your business plan... for later.

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