Why web hosting is easy.

Money grows on server trees.

At DreamHost, all websites are not hosted on state-of-the-art sgi origin 3000 supercomputers.

Web hosting is too easy for them!

Even if web hosting is one of the hardest Internet businesses, compared to the rest of the business world, it’s still pretty darn easy.

Web hosting is really competitive and yet still a very lucrative because it provides a value that is literally thousands of times the cost. For around $100 a year, a business or individual gets a world-wide publication and communication tool that’s available all the time (*cough cough*) with zero effort. Twelve years ago, you could spend a billion dollars and not have something even remotely as great!

And yet, when you get to a certain size (like say, DreamHost size) the cost to provide that service is itty bitty. Our data center and network expenses, i.e. our “Cost of Revenue”, is about 5% of our total revenues.. and it drops every year.

Of course there are plenty of other costs. There’s hardware, people (ohh, the people!), office overhead, credit card fees, insurance, benefits, and pizza (not always a benefit). But in theory, all the amazing value that hosting provides could be had for like $5/year.. and in 2006: $4.50. Of course, we can’t actually charge $5 a year! Nobody would sign up.

This hugantic disconnect made possible by the amazing “computer” is why I say web hosting is easy.

You can survive a lot of stupidity when you’re able to mark everything up 2000%…

Did you know in 2000 we had twice the employees we have now, with one fifth the revenues?
Stupid!
(Good thing that still put us at about a 50% margin!)

Did you know we had TWO full time handymen for the office space we were renting?
Stupid!

One of whom did cocaine at his desk (yes, the repair guy had a desk) every morning?
STUPID!

They say the key to business is not making any fatal mistakes. Well, the more revenue you have coming in, the bigger mistakes you can survive. Fortunately we were apparently super-glued to the biggest cash heifer this side of Ebay.

Which is why I’m always confounded when hosts go bankrupt, or like Interland, can’t seem to find a profit even with $100M in revenues. Could they really have more crack heads working for them then we did? Do they take longer trips to Burning Man? Do they use more sgi servers? Perhaps they’re getting that really nice Internap bandwidth? Are their credit cards charging them 70%? Maybe they’re buying ads in the back of Wired? HostingTech?

Whatever’s killing their cow, it can’t be the cost of providing web hosting.

It’s just too easy.