Have you ever wondered about starting a webhosting service?
If so, I can share some of the drawbacks of this business. And what pitfalls to watch out for. I’ve ran a successful one for years and also support for other hosting businesses as well.
1. The recurring revenue is not free money
This is probably the most attractive part of running a subscription-based business. Theoretically, money keeps coming in no matter what you do. It’s like someone subscribed to giving you money forever.
The pitfall is when you think it’s free money.
The truth is…it’s an ongoing agreement for ongoing work. Some months have more work. Some months have less work. Hopefully, your pricing turns out to be sustainable for both you (business owner) and the client.
2. Hard to start a client base
Webhosting is definitely one of those businesses that are extremely hard to start, yet super easy once you get big. It’s a bit like being a real estate agent. Everybody in your industry offers the same thing and markets themselves the same way. It’s hard to differentiate on a product/service that’s so similar to everything else out there.
Building traction is damn near impossible. Why should someone buy from you (unknown person) when they can already get it from a much bigger company with more reviews and brand trust?
If you’re like me, the trust in your webhosting was leveraged from trust in your other expertise…such as server knowledge, or web development relationship. But otherwise…it’s quite hard to do unless you have a super fancy site and throw lots of marketing promising better performance at dirt cheap price.
3. You have to know servers
Either you, or your staff/partner, have to know servers. Like really well. Trust me. I don’t care how perfect or management-free your control panel is. Shit will break. Services will fail or refuse to start up. Error logs will take up all your storage. Random crap will stop working AND not tell where and why they are breaking. Or the good’ole massive hack attack in the middle of the night.
And of course, it always happens when you are most busy. Like when you’re on holidays, giving birth, or doing a road trip without internet. I guarantee it!
4. Blamed for poor themes/plugins
Your hosting will constantly be blamed for other people’s problems. Shitty theme, shitty plugin, shitty user mistakes. All that is your fault…at least until you spend hours proving otherwise.
And until you spend the time to prove it’s not your server, your server is guilty until proven innocent. It doesn’t even matter if you do prove your innocence AND solve your client’s problem anyway. The exchange leaves a negative imprint of your service in your clients mind regardless.
5. Lots of support
Many users will never bother you, but all users will eventually need you at some point or another. Even experienced “developer” users will still need your help.
Truth is…all clients bring their problems. That’s how they found you in the first place. Because they had a major issue. Now what you have to pray for is that the issue they had was really only with their previous host and not with their website. More often than not, it can be a combination of the 2 or even just the latter. No doubt, clients expect you to know everything about their site and why things don’t work.
And if it’s not technical issues, it’s something else. Someone will have a billing problem. Credit card doesn’t work, or they paid with the wrong method or to the wrong account and now want a refund. Or you have people clogging your support channels with unrelated requests.
6. Marketing pressure
Regardless if you’re an aggressively marketed brand or a lowkey under-the-radar brand, your company will still be subject to your competitor’s extraordinary claims regardless.
Your competitors will be constantly pitching their service as offering all the latest features. And if you are LUCKY, your clients will give you the chance to explain whether your service offers those features and whether they’re even necessary. Most of the time, you won’t be lucky and some clients will move away out of curiosity not knowing that your service might actually be better/cheaper for them.
7. Overly negative reviews
God forbid your service ever has a hiccup, clients will move away sometimes making up overly negative sentiments about your service to “justify” their decision. Sometimes, your clients will be emboldened with even more made-up sentiments passed onto them by their new developer or new webhost. Of course, they never mention all the things you did right or the times you bent over backwards doing many things out of scope to make them happy.
Not much you can do about it. Argue and they make a bigger deal out of it (bringing more negative publicity to your brand). Don’t argue and an unfairly negative review about your service sits out there in public. Pick your poison.
8. Complimenting services
Selling a service often requires including many other services. It’s not just the server. You might also have to deal with emails and DNS. Migrations and CDN/SSL. Diagnosing and troubleshooting. Software maintenance. Hack repair. And on and on and on.
Sure, you don’t have to offer all these things. But knowing that they’re expected out of you can require a lot of client education or careful marketing to communicate your service.
9. Industry pivots
Every 3-5 years, the industry evolves or adapts to a new trend that almost always kills off all the pretenders. If you’ve been operating as a generic service piggybacking off the innovations of other companies, you are in danger of dying off during these pivots.
Wannabe copycat hosting companies are always the most vulnerable during industry changes. They’re not only slower to adopt new technology, but also don’t have enough experience to know which trends are here to stay and which ones can be brushed away.
The moment you think you can “just start a company” 100% based off of what has already been done…you’re late to the game, my friend!
10. Hard to scale
There are a few things about the webhosting business that make it very difficult to scale from 1,000 clients to say…100,000 clients. It’s like you’re either a small personalized boutique service. Or you’re a mass-produced hosting service. But trying to wade through that middleground is absolutely treacherous.
Is it because of having to hire staff on different timezones? Or reorganizing your company support staff and service expectations? Or the work of streamlining all server maintenance? Maybe the feeling of losing your vision as your business grows. It’s tough to say.
It’s no surprise to me at all that many SUCCESSFUL small hosting companies often sell their business to larger companies and exit the business altogether. It’s obvious. They remember all the pains they had when the company was still small and can’t fathom it being worth the hassle if this “success” was multiplied times 10, 20 or a 100 times.
Great post, Johnny. Is there anywhere I can contact you? I want to discuss this better!
You can discuss right here on this post or in my WPJohnny Facebook group.
Thanks for the post Johnny, very informative. I’ve recently started a digital agency offering hosting as one of my services! With a lot of hosting company’s now answering queries in less than 5 minutes do you think this is critical to have as a hosting company?
What exactly? Critical to answer pre-sales queries in 5 mins? Or you mean support queries in 5 mins?
To clarify, I meant support queries.
I’m pretty sure many don’t. Even some of the biggest companies don’t respond that fast, but it’s definitely nice if you did or if you offered chat support.
John @ S4
“The truth is…it’s an ongoing agreement for ongoing work. Some months have more work. Some months have less work.”
So true. It’s also important to remember that even if you aren’t actively needing to do something for a particular client that doesn’t mean that you are not ‘on-call’ for support at any time.
Absolutely true! Having to remain available and constantly checking for issues. It’s like having to watch your kids. Still a job even if you don’t have to do anything.
It looks that now is the best time to start the LiteSpeed/NVMe hosting business. OVH Data Center offers Intel Xeon-E 2288G and AMD Epyc 7371 for anyone willing to try it. The low threshold of setting up the web hosting business implies a low threshold to winding it down. So, hosting with a new company might be risky. But, the big names are in a mess with their inability to accept the defeat of Nginx. In the current situation, the hosting company size is its liability.
Our analysis is presented here: