Pricing again

[GordonH]

Hello
Every few months I compare our prices to a few other companies including Hostrocket and Hostsave.
it looks liek the size of plans compared to the price charged has taken another jump.

Look at http://www.hostsave.com

Last time I increased our allowances sales improved.
I am not keen to do it again but it may be time to bite the ******.

I am already relaunching our cheap service, but it looks like profits are going to go down rather than up, as when we do big plans like that we can't have as many sites per server.

The future is looking a bit worrying as its not just the el-cheapo hosts who are going in this direction now, its the pmore reliable, established brands.
If we don't move with them we are going to lose market share.

:uzi2:

[Visio]

This is a more common-a-thing recently, I'm glad you brought it up as I have an opinion on the industry as a whole, in regards to allowances over prices.

What intrigues me the most is the pattern I'm seeing in the business of larger companies and entities, in bringing their prices down and allowing more resources. You see the same trend with television sets when plasmas got introduced, and VHS tapes when DVD's were introduced.

Are we to expect something better in regards to data storage and file hosting, or is the industry "flat on its ass" as some people would like to say?

[asp-hosting.ca]

I don't think that offering 100GB instead of 50GB will have any real impact on the actual bandwidth usage. Maybe a little, but not much. So, go ahead and increase it :).

[ldcdc]

If we don't move with them we are going to lose market share. Maybe you don't really want a share of the market they're after... :)

Question: is there a fundamental change in the prices of hadware, bandwidth, staff salaries, efficiency of management, one that would suggest that hosting prices should go down? Or is this new lowering of hosting prices (at some hosts) just overselling taken to another level?

[GordonH]

What it is doing is changing customers expectations.
Managing customers expectations is already dificult enough...

[projo]

My wife is waiting on me to watch a movie so please forgive the draft nature of this post and just treat it as an additional seed for discussion.

The industry is mature and has diminishing margins; it is time for a shift. We have seen this many times and as with computers the next thing to happen is a big shake-up. After the dust clears a few companies are likely to take the biggest parts of the market. It is likely to become almost impossible for startups to succeed.

There are ways to survive. For one we can learn the Avon lesson, i.e. you profit from the startups that believe in the dream of making money by selling Avon. Hosting has gone this way. There are already many who sell to those who believe in the dream of hosting. So it may be time to move to the 3rd tier, the data-center. And it may be too late for that as we are already seeing really large data-centers. Maybe a center at the local level?

Another way to survive is to leave the main wave, i.e. leave the main service/supply channel. For example, even though it is almost impossible to compete with HP, Dell, etc in today’s consumer market there are still niches, such as assembling and selling servers to people who believe in the dream of owning their own servers (This particular niche is probably mature also). Maybe move to a peripheral market?

Please allow me to reword the above as specific advice:

1. Look around and discover where large numbers of people are investing money in activities, hosting or otherwise. Do not join them but rather enable them. However, if there are already a large number of people providing services to that large number of people then back up another service/supply level. On the otherhand maybe you should have a peripheral business. With hosting you might provide software, education, tutorials, template designs, server management, 24/7 service call centers, hosting discussion forums, etc.

2. Find a niche. An example of a hosting niche is blog hosting (I have no idea of the profits). Cell phones are hot, been hot. Maybe there is something there.

3. Survive by adopting new technology. I read that one company plans on using Mac minis for hosting. They will be able to get 50% more servers in a rack. I also read of an IBM computer that would host 10,000 virtual servers.

4. Change your market to where clients are not as sophisticated and thus need your guidance. I know a guy at work that recently paid $30 a year for a domain name. He paid for 10 years in advance. I could have easily sold that name to him for $20 a year. And I could have also provided him a lot of good advice on creating his site, a lot more than what he got for his $300.

Or find a market with special needs. I recently set up a 14,000-record database for a local organization. I had no competition.

5. Then there is …… Oh never mind about that.

6. And the only real advice I can give you is that if you come up with a really good idea, maybe you should not tell us. :D

gary

[GordonH]

Check out www.hostsave.com now
Poweb have a similar plan also.

I doubled the amount of disk space we were giving on our cheap hosting to 2GB, now the stakes have got higher in the bandwidth. I was giving 80GB.
Now thats considered a bit of a joke.


Disk space is not a problem to provide, but if you offer large bandwidth you get huge forums and can maybe only put three or four sites per server.
The only way round it is to terminate customers who use too many resources, but this would give you a bad reputation.

So how do we compete with this?

[ldcdc]

The only way round it is to terminate customers who use too many resources, but this would give you a bad reputation.

So how do we compete with this?By not having a bad reputation. :)

As a hosting business owner once told me that this industry is becoming a scam. In a way, he was definitely right.

[Andrew]

wow - this is a really interesting thread - the key to success in any industry is to differentiate yourself - and if your competitors are decreasing their prices, my immediate thoughts are to increase your prices and wrap value around your offerings.

The only way round it is to terminate customers who use too many resources, but this would give you a bad reputation.

Then you will be just like every other overselling host on the market - and this market is 1) saturated and 2) doesnt necessarily lead to the most desirable clientelle base - your reputation is worth ALOT more then this :)


Maybe you don't really want a share of the market they're after...

As a hosting business owner once told me that this industry is becoming a scam. In a way, he was definitely right.

Dan has pretty much summed up this thread with these responses - why compete with companies selling snake oil - a massive differentiator is the fact you arent selling snake oil - and established businesses are willing to pay a premium for this - and frankly, if they dont pay a premium for it, they dont trust it.

[ldcdc]

and frankly, if they dont pay a premium for it, they dont trust it.The beauty of the way the human mind works. :)

[GordonH]

I found a way of competing, but it presents a number of marketing issues and involves using big servers, but it would need more clamping down on resource abusers. AT the moment our cheap service has only 100 domains per server so even if one person is using too much it does not normally have an effect on the other customers.

I may try it.

Unfortunately the market is totally price driven. I find it very difficult to persuade people that its worth paying a little bit more.
When we advertise its the cheaper services that get the best ROI as there is more interest in them.

I am pleased I found a way to compete though, makes me feel a bit brighter.

[Andrew]

Hi Gordon, Im pleased you found a formula that you can work with - however, to touch on a couple of your points...

Unfortunately the market is totally price driven

I dont believe this is true - hosting is a service, not a commodity item like sugar

When we advertise its the cheaper services that get the best ROI as there is more interest in them

Do you think this is price driven or do you think this is reflective of the market you are targetting?

I apologize if I am offending you, as certainly that isnt my intention - I just feel alot of providers are participating in a price war because they feel they need to in order to survive - however, there are alternatives - and if you dont play the price game, you will find you are better equipped to offer a higher end service that demands higher pricing...

Anyway - my $0.02 - Im certain you will achieve your goals whichever way you go - I just like to offer up alternatives :)

[ldcdc]

Andrew, Gordon has more brands, each catering to certain markets. Thus, he's competing with pretty much all other hosts out there. I guess it's not easy for him to fight on all fronts. :)

[GordonH]

Well, most people who contact our main brand (expensive) price is the leading issue with them. I rarely get asked questions about network or backups. Price is right at the top of the list.

[Chrysalis]

my own experience price tends to be the main factor, not always but bmost of the time. I get people asking me to remove features to get the price down.

[ldcdc]

Well, most people who contact our main brand (expensive) price is the leading issue with them.Interesting...

Off the wall question: What if your expensive brand would suddenly become even more expensive. Say 2 times more expensive. How much do you think that the sales would drop?

[GordonH]

Well I once increased the price of a 2 year domain name by $1 in our US market and the number of registrations dropped 20%.

Hosting sales started to drop at one point so I doubled the disk space on plans and sales increased by 40%.

If someone needs 100MB of web space but sees 5GB of space for the same price we sell 200MB for they will go for the 5GB regardless of quality (which they really cannot know anything about).

The two issues that influence purchase most are:

1. Price / perceived value for money.
2. Whether the web site makes the business look bona fide.


I could match these sort of low priced offers but I would need cheaper servers (dual Xeons) with lots of accounts on them. I couldn't convert existing customers from our cheap brand without moving their files and it would get very messy.
If I set up a new brand it would cost too much to promote and give it a profile.
I have some ideas of how I could do it. The risk is fairly low, but I am getting new offices next month which is costing a lot of money and makes it not a good time for new developments.

[ldcdc]

Well I once increased the price of a 2 year domain name by $1 in our US market and the number of registrations dropped 20%.With Godaddy sort of setting the standard for domain name prices, that might not be a huge surprise. :)

Hosting sales started to drop at one point so I doubled the disk space on plans and sales increased by 40%.It would be more interesting to know what happened to the total profit rather than the pure sales increase... After all, profit is the main drive of a business.

[GordonH]

I would love to paste a link to a page in my blocg but its not allowed, sufficient to say my interest in luxury cars was revived.

[ldcdc]

sufficient to say my interest in luxury cars was revived.Hahaha! A nice way to put it. :)

[GordonH]

Here is the article from my blog:

Depression and the speed bump
Friends of the Earth have finally won in thier battle against the car.

They tried increasing the price of petrol; they forced the fitting of catalytic convertors, but the car manufacturers fought back with technology to make cars more economical and more powerful.
In the end it was something much more mundane that has stopped me fulfilling a lifelong ambition.

Having spent two weeks seriously looking for a second hand Ferrari I finally realised that there is no way it would get over the speed bump at the entrance to our street. It would end up as an expensive seesaw for the local kids. I then thought about getting some workmen to remove the speed bump, but unfortunatley the local cable company recently laid a cable INSIDE the bump. Yes, I know that makes no sense. They did not even ask the owners permission (its a private road and their general permission to dig only covers council owned roads).

So, the outcome is no Ferrari.
I think a Porsche would get over the bump, but its not the same thing is it?

[ldcdc]

It gives me the impression that money were not an issue. Good to hear! :)

[GordonH]

They are putting these speed bumps everywhere.
My main car is a Mercedes with lowered suspension and it barely creeps over the top of the bump. Its a real pest and it just encourages people to put their fot down once they are over the bump.

[Brian S]

The next craze to hit your town soon...the Speed Dip. No kidding, I ran over one of these, and let me tell you, that thing is effective. With an SUV, you can fly over a speed bump if you're going fast enough. But with a speed dip, that thing can ruin your day if you go too fast.

Brian

[GordonH]

The next craze to hit your town soon...the Speed Dip. No kidding, I ran over one of these, and let me tell you, that thing is effective. With an SUV, you can fly over a speed bump if you're going fast enough. But with a speed dip, that thing can ruin your day if you go too fast.

Brian

Yes, I can imagine that.
I used to drive a people carrier and it used to fly over the bumps the suspension was so good.
Driving on the uprated sports suspension now means that any bumps are back breakers.