Shared hosters must change or die!

Shared hosting has grown steadily since the mid-90s and remains a healthy business. But why have so many hosters started to experience slowing growth? Why is it still so hard for hosters to increase customer purchases of attached services?

The reality is things have changed. The low-hanging fruit stage has passed, advertising costs have gone up and the overall cost of acquiring customers has risen. The impact of social networks and free hosting services is also being felt. And pricing pressure, while moderated in recent years, continues to be a challenge.

Shared hosting also remains an intensively fragmented business with literally thousands of providers competing on a global basis. It is somewhat ironic, with all the competition and change in the market that the business has not changed appreciably over the years. SOHOs, SMBs, designers and developers continue to be the industry’s bread and butter customer and the underlying technology  – control panels, site builders, management and billing systems – has not changed a great deal. Meanwhile, hosters are making strides upselling customers into adjacent products and services but overall, adoption is still in its early stages.

This can’t go on. The shift in competitive dynamics has forced shared hosters to transform their business and the enabling technology will have to evolve in lockstep for this to happen. Hosters simply don’t have the resources to engage in full-scale research and development and will mostly have to rely on the expertise and scale of third party vendors to do this for them.

So how do shared hosters turn a profit in shared hosting? Three strategies will get things going in the right direction.

Strategy #1

Be more efficient. That is an old answer but worth repeating. An effective way of going about this in the shared hosting world is to drive more density out of a server by exerting a certain amount of control over compute resource allotment. The more predictable and controllable resources are the easier it is to manage and gauge performance. By extension, that means the easier it becomes to maximize the number of customers a hoster can comfortably put on a server. Better performance can also help hosters maintain price integrity and battle against cloud infrastructure services. The bottom line is compute resource throttling and management is one important area of innovation that has the potential to take shared hosting to the next level.

Strategy #2

Operational efficiency remains the key to generating strong bottom line results and automation on the back end is the driver. But the industry has not always had an abundance of infrastructure management tools that scale. Multi-server management tools help achieve both scale and efficiency and are good examples of what the shared hosting industry needs to be better at as it transforms. Scale means more margin and in turn opens up more resources for sales, marketing and expansion.

Strategy #3

Drive top-line revenue growth through sales of adjacent services and drive ARPU growth from existing customers. In other words, how many more products and services can you sell to a customer on top of a domain name and hosting? The answer should be plenty! Email has been a logical add-on and the hosting space has had success with it. But what is next? Is it backup and storage? Collaboration tools? CRM? Is it online marketing services? All of these are great things to offer and there is no right or wrong answer as to which or how many of these products a hoster decides to offer.

The key question is can you deliver them efficiently and profitably and in a way that is enjoyable for the customer to use? It requires two things: 1) a delivery platform with a backend management system and automated provisioning; and 2) an ecosystem of products that hosters can choose from. The two are closely intertwined. The delivery platform enables automated upsells and provisioning and an ecosystem cuts down the legwork required to find, evaluate and deploy products and services into a hoster’s portfolio. And automated processes on the back end contribute directly to the end user experience on the front end. Deploying services is one thing but it has to be easy and automatic for customers to buy these adjacent services.

The hosting industry is at a unique point in its history. At no time has it been more important to build value for customers and optimize how hosting businesses are run. And everything starts with the technology hosters have at their disposal. If the sector is going to hit that next stage of sustained growth, innovation in panels, management systems and delivery platforms are more crucial than ever before. Without innovation the competitive pressures will continue to make life tougher for hosters.