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Build hosting company from scratch. Part 1. Introduction.

This is the delayed adaptation of my original post in Russian. Super delayed, but I guess it’s better late than never. 

I used to run a hosting company in the past and after closing it I decided to start my blog about hosting business and digital marketing. 

The main goal is to share gathered experience thought years. If this post is going to gain enough attraction I will continue to post more. 

If you had to search right now “How to start hosting company” or similar search terms, most likely you would find outdated articles, which are not reflecting realities of the current market. 

I wish I had found this type of article then I started, to avoid many mistakes and save time/money. 

For people who are already in hosting business, this can be a useful article, which might bring new ideas, or changes to your business. 

Budget and time 

The most important thing, in the beginning, is to decide how much time, money and life energy you are ready to sacrifice. At this point, we will have a better picture of how serious you are about this. 

The low budget should not be an obstacle. You can start with low and invest more in the future. It all comes down to you. Work. Set goals. Achieve goals. 

I made a simple breakdown in 3 categories. In which category do you belong? 

Category 1. “Economy”

Expenses: from 100$ up to 1000$ per year. 
Time: at least 20 hours per week 

Let’s imagine that you are a young student, without experience or maybe you just want to taste the water. There are quite many hosters who started in this category. 

You have the lowest amount of possibilities. Selling shared hosting on dedicated servers or reselling other hosting companies. 

Category 2. “We got enough money for servers and colo”

Expenses: from 5000$ up to 100 000$ per year. 
Time: at least 40 hours per week 

You need a good amount of experience, or knowledge of how hosting business works, or a similar one. Now you have way more possibilities and opportunities than in the first category. You can sell most of the services, which other companies offer. 

Category 3. “I am going to build my own datacenter with servers and blackjack”

Expenses: from 500 000$ up to ∞ per year. 
Time: 80 hours per week 

Probability is quite low that you have that amount of money right now and you read my blog post. In case you belong to this category – feel free to contact me, if you are searching for people to work with you. I am open to new opportunities.

Sell solutions, not infrastructure. 

Before you start doing your business plan, gathering a team and preparing the launch of another hosting which does not differ from thousand of others just read this. 

It does not matter which business you start the key moment is to know your audience and what services you sell to them. For that, you need to do market research and find out which services have demand. 

There is nothing bad neither good in selling traditional hosting services such as shared, VPS and dedicated servers. You get straight into a red ocean with huge competition and the same products under different brands. 

It’s red because the cutthroat competition turns the ocean bloody. 

The term “red oceans” comes from the book «Blue Ocean Strategy» by Kim Chan. Instead of reading the whole book, you should just look for a good summary and understand the concept.  

Your goal is to find that blue ocean or mix between blue and red and avoid competition as much as possible. 

So what does exactly it means to sell a solution, instead of infrastructure? I will show some examples. 

Managed Hosting/Cloud 

Right now services such as managed hosting/cloud are rising and gain more attention, especially in the USA and Europe. 

In the USA and Europe, this market will establish soon stability and leaders. As a good example, I will use RackSpace and CloudWays. Besides providing a wide list of services they offer managed cloud. In that list, we can find almost all popular cloud providers such as AWS, Azure, GCP, and Alibaba Cloud. 

What is the advantage of providing such services?

  • You save money on infrastructure because you don’t have it 
  • Less competition with huge companies. Each year it’s getting harder and harder. 
  • There is more demand for managed services 

The main reason why managed hosting/cloud is getting more demand is that customers/companies don’t want to waste their time on infrastructure and focus more on developing their product.

Look at the picture down below to understand better how much managed hosting covers.

CMS focused hostings and site builders 

Good examples are hosting companies like Kinsta/WPEngine and other different website constructors such as Wix/Weebly. 

This type of hostings eases installation, scaling and managing different CMS. Website builders are not sitting around and you can build almost whatever you want starting from a simple website and ending with a blog, or eCommerce shop. 

Just remember that there are way more CMS around than WordPress. They might not be as popular, but there is still demand. There is also a good chance to partner with new CMS which is coming around. 

The same goes for site constructors. It can be more niche specific instead of putting low-quality templates for all kinds of business types. 

Business plan 

You can find good business plan templates for free, besides that, I recommend doing SWOT analysis as well. Remember that there is a big difference between writing a business plan for yourself and potential investors. The first one requires less time and information. 

Here is just my shortlist: 

  1. Which services you are going to sell? 
  2. Who is your audience?
  3. Market research
  4. Competitors analysis 
  5. Team and management 
  6. Marketing strategy
  7. All possible expenses 
  8. Risk management 
  9. Goals and vision 
  10. Roadmap for launch

Market research 

To make things easier I will share some stats from 2017 which might be useful for future planning. 

Look at traditional hosting companies such as GoDaddy/Endurance Group/Host Europe Group. There are no changes for 8 years. They are just staying on the same spot and not making any progression compared to other cloud providers. 

In another, some other traditional hosting companies are moving forward and add more products. Good examples from this graph are Hetzner and OVH. In the past, they used didn’t have any cloud services such as VPS with easy to use panels. 

Notice how aggressively Alibaba Cloud is pushing. No need to mention AWS and their leadership here. But there is a clear image that cloud-oriented hostings are doing better and growing all the time. 

Let’s not forget here about CMS usage. WordPress is an obvious leader here and it’s been for a long time. Don’t forget that there is a decent amount of managed hostings who are eating that 28,2% out of the chart. 

What hosting companies can provide? 

This part is more for newbies who are not aware of what hosting companies do and what are the possibilities.

  1. Reselling hosting/domains/SSL
  2. Shared hosting 
  3. VPS
  4. Dedicated servers / Bate metal servers 
  5. Cloud (hybrid, private) 
  6. Gaming solutions 
  7. Government solutions 
  8. CDN
  9. Big Data
  10. CMS solutions (WordPress, Joomla, Drupal, etc) 
  11. Managed hosting/cloud 
  12. Database hosting
  13. Mail hosting 
  14. Backups and storage 
  15. Your unique solution 

There is more, but this is a decent list to start with. Learn more about these products and their demand. 

Remember that hosting providers don’t need to resell domains. You can become an accredited registrar if you got enough money in the pocket for the ICANN license. 

Summary and thoughts 

I wish I posted this earlier in 2017-2018 then I originally made this post. In the next part, I try to cover more new topics regarding the business plan, tech stuff, and payments. 

I will try to break it logically into parts, so it’s easier to read and follow. There is a huge amount of things to cover. 

3 Comments

  1. Mountain Jim 17/12/2019

    Excellent article and very interesting perspectives. I’ve been managing hosting in various capacities for over 15 years — it’s become a tougher gig over time. I’ve been struggling to find areas of the market that are not competitively saturated — ie, the less-red ocean. I could really use your thoughts and perspectives here.

    Anyway, thanks for this. I really hope you continue the topic with more posts.

      • Anonymous 17/12/2019

        Awesome — looking forward.

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