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How can Low End Companies with low prices make money?
In this case, please understand low end companies = offers under $7/month. Inside these companies' group we have a few ones that have an unique focus: PRICE.
So, my doubt is: how can they make that prices and if they can earn money with them?
Economy of scale?
No support? Yes, support cost time and money.
Automatization?
I'd like to know what is the limit that a provider can make money and after that it is trying to appear and advertise its brand.
I know some companies open and some close the doors each day. It happens in all niches.
I can see some companies need to close locations and start little again (with 1 or 2 locations) and with their own hardware.
I do not believe if you have your own hardware it means you will earn money. Maybe it can be a good thing if you are near it and can do support.
Is it mandatory to earn money and be competitive to have your own hardware? (I am talking about the BIG ones with very low prices).
Maybe I am wrong, but in my mind it is difficult to see the difference of a BIG provider and a little one. Some guys could say the SUPPORT can be a difference. Really? For each side? Overselling or not?
If you have hardware but no clients, you are losing money. If you make promotions and do not have support, you will lose clients and money in a near future.
I'd like to have an idea about the real costs involved and how they can make money.
If you need to see a few offers under $3:
comparevps.com
I could read a nice explanation some time ago here in LET but I could not find the topic again.
This guy gave an example about costs, but it has not the focus in this niche: PRICE.
axelsegebrecht.com/how-to/make-money-offering-vps-hosting/
The best thread I could read about this:
webhostingtalk.com/showthread.php?t=1037747
All these companies with offers like "128Mb for $1" are overselling, right?
IP space + support cost + hardware + taxes = how can they pay for them and make money?
Is it possible to COMPETE with them? How?
Thank you!
Comments
sell plans at razor thin profit, gather clients, then sell your brand to a larger host
Sounds familiar. Haha. Another option is overselling like there's no tomorrow.
I think you will find that my previous comment in another thread answers your question quite well:
http://lowendtalk.com/discussion/comment/338060/#Comment_338060
The short summary for you to answer your direct question:
Edit: Not sure if you have noticed this, but a lot of providers here now are just brands of larger already established companies which can afford to use their LE* brand as a loss leader. You should notice that this is becoming the recent trend in this niche business. For example, RLT buying up a bunch of brands like Semoweb, Urpad,etc. Wiresix buying up Front range Hosting, etc. These are only a few examples. My point however is that the goal in this industry if your not an already established host (especially for a lot of the hosts seen here on LE* now) is to build up a user base and be bought by a larger provider. It used to be that this forum was about supporting up and coming small business owners and helping them build their business, but as more and more of these entrepreneurs sell out, the more of a "big business" this niche becomes. Thus why ColoCrossing runs around trying to buy up every brand they can or convince them to use their network so when they do fail, they can scoop them up for a nominal cost.
Cheers!
other also do pump and dump, instead of selling their brand. maybe not that common now, but still happens
You'd be surprised how many people will pay regular price without promos. It's the word of mouth from those promos that gets the name heard.
The really low priced/low end offers (32-64 MB ram, a few GB of disk with IPv4) generate losses if the company sells only those (maybe not in US where IPs are free).
However there is such thing as selling the leftovers.
When you have a few IPs left on a big vlan and no real space to host more VMs and no more demand for extra IPs you might as well sell a few low end plans from it.
Same on big servers with plenty of CPU left and some space but very little ram you can also sell a few of these.
The whole VPS business in prometeus was supposed to run on leftovers.
Some extra traffic, some extra space, some stray servers.
It turned into it's own sector now, with a few brands of it's own cloud services and international locations.
Of course it will never bring the revenue the corporate sector brings with streaming clusters and vmware/rhev clouds with 64 GB ram VMs and the like, however for the investment (apart from Salvatore's time which should have been put to better use) it didnt turn out bad.
Already some of the corporate customers are there because they heard of us via friends using the low end services. They are probably thinking if the low end quality is such, I suppose I cant go wrong with real business applications.
I realize this is not the story of the majority of the people here, but I thought it was worth sharing it.
Free market
I sense a kid trying to enter the market with another fly-by-night host.
@RichardLeik - I would think that "fly-by-night" is a question of character, not age.
From conversations it seems a LOT of small hosts also have day jobs so initially a salary tanks the costs but after that the mah is simple for pure LEB hosts.
32GB Ram server with at least 64 IP's = Budget $200 (not hard to find)
Licenses $30
Oversell and profit ratio/maths.
32 * 4 = 128
128 / 2 = 64
64 * 7 = 448
448 - 230 = $218
So that would be a single node with a pure LEB style offer, mean time get a nice site and advertise on WHT and anything sold at regular prices is a bonus/boost
Rinse and repeat 20 times over 2 years and you have $52k profit, leave your day job start a new "premium brand" and slowly switch LEB priced customers to regular over the next 2 years doubling your profit without additional expense.
So that seems to be the rough idea.
Ant
It only works like that on paper.
In reality customers will abuse it and you will have a lot of costs with cleanup and some DCs will even kick you while others will impose ridiculous fines.
There will always be cheaper offers, nobody really buys 512 MB at 7 $ anymore unless in exotic locations or with some license, or management...
Even 3.5 $ for 512 is expensive here unless you are really established and known host or with ssd.
Overselling 4x will also bring issues, especially on E3s where there are not many cores, just a couple of abusers with 4 vcpus each and your node has only half the cpu left.
Nope, only unexperienced people can think like that, no wonder they fail at first, even at second and third.
But, you are right, there are many that go that route I would say, the majority.
That depends on your location. In some parts of the world the rent of a server like that is much higher than the average salary.
Also you need time to sold out node. That is making loss at the beginning. Also i recommend testing node and network for a few months before starting a service. All of those costs money. Night shift of support...
That is not generally required though nice to have.
For LEB prices most people give 12 hours for support they know what unmanaged means, but there are many hosts that offer 24/7 with delays below 2 hours average which you cant manage with a one-man show with a dayjob...
No the market is hard and many people leave it and will leave it including established hosts, I am not counting those like VIrtual6 or similar which quit already 4-5 times.
Yep on paper, but then again every business plan no matter how basic can never be 100% accurate on predicting the flow of your business as you are the one controlling it but as long as it is sound on paper then you have a green light.
You obviously need to be prepared to adapt to market changes, overselling by 4 or even 8x is more than doable in OpenVZ with no effort at all, no CPU issues you just manage it, I can have and do do this so my source is myself along with certain DB leaks from much bigger players in the past which have also evidenced this.
You just have to accept you WILL get abuse, it is how you deal with it that matters, i.e. you dont shy away from starting something because of what "might" happen.
Quite correct that not all salary's can tank the server costs, that is why not all people can do this and probably why so many fail.
LEB market is great if you already have established hosting company, and support resources you can do great sustainable business with it.
Perhaps, but when your customer sees 200 Mhz CPU will start asking questions even if it is not needed, if you advertise 4 cores but dont allow a load of 2, then a hard sale will go worse and your brand will suffer.
I agree it is fully doable, but I disagree it is trouble-free.
Yes, it sounds familiar to me too.
I was in one of them when it was sold. Not a good experience, I can say.
Maybe I understood it wrong, but I understood you wrote that it is NOT possible to maintain a service with clients without SELL it in the future.
In the case I do not want to sell my brand, but I want to COMPETE with THE BIG ONES, how can this be possible?
In economy of scale they have the low costs, but they have NO support. At least, almost of them.
And I could not have an idea about COSTS, yet. The difference between a big provider and a new one (that wants to sell that brand in the future).
Example: we know that IP costs are different when you buy a lot and only a few ones / year. But there is no option where the IP cost will be FOR FREE. It has a minimum price.
Can you give an example with prices?
Thank you!
In US you can get free IPs from some deals because the DCs wish to hoard as many allocations as they can before ARIN goes to the last /8.
However you shouldn't rely on free IPs forever in your business plan, because sooner or later the DC will run out of IPs and will try to get rid of all these "free IPs" customers or at least start charging them for IPs.
With small profits
Yup I remember seeing a lot of upset when this happened with RIPE and OVH started charging p/IP.
Indeed, but if you have CPU policys in place you can seriously minimise this.
Example: http://serverbear.com/benchmark/2013/10/04/OC26B05MsBZwyCLw that is a X3440 - 4 cores shared between 218 containers
Hostnode:
OpenVZ eats containers for breakfast, it truly is an amazing product in terms of over allocation.
@AnthonySmith said a good thing about OVZ. Prepare for judgement day!
@anthonysmith Isn't that your lowendspirit node? Different user-base/usage patterns/expectations I would imagine.
Yeah, try sell some 4 GB containers off it where people run minecraft
We have a similar saying here, it says something along the line of X enters his last year of life since did something so unusual for him/her. I doubt this is universal, though.
Well the maths is the same, 4GB Nodes vs 32GB Ram nodes, and from what I see the higher the allocation the more it favours the provider so I don't see that being an issue.
4096/128=32
32*8=256
(32 being how many containers at 100% none oversold, 8 being the over sell ratio, 256 being the number of containers)
32768/4096=8
8*8=64
(first 8 being how many containers at 100% none oversold, second 8 being the oversell ratio, 64 being the amount of containers)
So if anything if your only getting 64 * 4GB containers on a 32GB Node, your doing it wrong
ok
its not mandatory to have all products as low-end
you can have premium products as well
the premium products will make some handsome profits....
and yes, get huge number of customers/clients to your low-end part, keep the profits, razor-thin, and thus make huge profits...
Well, how about having 64 on 64/128 GB ram and still lacking some CPU
Remember we do not limit the cpu and people run MC there.
I do not say this is not profitable, just that the profit is low. Better provide what we advertise and have happy customers at the cost of lower profit. If the profit is too low, we simply dont invest anymore in the area, we do not put more OVerZold servers but we do serve our existing customers.
We have a similar starting budget and have been considering trying out some VPS offers here, but aren't sure if it'll be worth our while. Longevity and sustainability isn't a concern as Host Nun is a side project rather than a primary source of income. Frankly it will always stick around in that I have various ongoing personal projects on the same servers... but in addition to what @TheLinuxBug said about elimination earlier in the thread, we've been told that 'most of the companies' on LET are 'kiddyhosts and wont last 12 months, or are large companies with very low overhead by owning their own servers, network, sysadmins etc.' and tl;dr competing here will be difficult because of this.
I would consider taking the plunge if there were needs going unfulfilled that my own offers could remedy, but it seems like the providers here have most bases covered on first blush...
Sister, you can start with a prayer and offering for the lost souls