Business Strategy for Web Hosts
A rich man asked Sengai to write something for the continued prosperity of his family so that it might be treasured from generation to generation.Sengai obtained a large sheet of paper and wrote: “Father dies, son dies, grandson dies.”
The rich man became angry. “I asked you to write something for the happiness of my family! Why do you make such a joke as this?”
“No joke is intended,” explained Sengai. “If before you yourself die you son should die, this would grieve you greatly. If your grandson should pass away before your son, both of you would be broken-hearted. If your family, generation after generation, passes away in the order I have named, it will be the natural course of life. I call this real prosperity.”
Any Competetive Web Host needs to realise a strategy that best suits growth.
What is Strategy?
“A strategy is a long term plan of action designed to achieve a particular goal, as differentiated from tactics or immediate actions with resources at hand.”
Do you have yours ready? Is this the first time you’re thinking on these lines? If so, as a web host, you need to first try and understand, what do you really want to do with your business?
The general response is :
a) Its intended to be a long running business.
b) I am just trying out this business to see if it runs.
c) Short Time Business plan, startup, create the clientele and then sell it off for profit.
Whatever it is, you would need to have a strategy in place based on your modus operandi.
The Strategic Scope of a web host is generally defined as the sphere of web hosting. As everyone realises, when the WWW was started, people never believed we would ever fully utilize the IPv4 IPs’ that were assigned. Today the WWW has become so widespread that we even have to plan our moving towards IPv6. This clearly indicates that there is still further scope for any web host to start shop and there are a lot more people who have yet to get online.
The strategic strength of any web host is based on the supply side evaluation of his strengths. It normally consists of:
a) Server Colocation/ Dedicated Server cost.
b) Cost of bandwidth
c) Licensing costs for softwares
d) Cost involved in supporting the customers
e) The Market area it focusses on.
The Strategic Strength of any web host can be classified based on a) Cost Leadership Strategy b) Differentiation Strategy & c) Market Segmentation Strategy.
Cost Leadership Strategy
This strategy basically involves in as the name suggests to reduce the operating costs. Remember
“Profit = Revenue – Cost”
So when you reduce the over all costs you have higher profits. Now how do you reduce costs?
i) Increasing volumes.
When you increase the overall volumes, the average cost prices decrease and hence your costs involved decreases.
ii) Outsourcing Support</span>
This is the most common thing today. Everyone outsources their support today to gain a competitive advantage.But when you outsource one common concern is look at the long term vision of your company and accordingly choose value for money support services rather than the cheapest available ones.
iii) Choosing Cost Effective Providers</span>
Selecting providers who can give you cheaper servers, cheaper bandwidth and additional features. They save you a lot of money in the long run.
The Cost Leadership Strategy but even then stresses that web hosts should not go for the lowest cost strategy as other than resulting in a price war among competitors, your never able to increase your profits and it actually may cost loss either due to dissatisfied customers or because your competition can afford to accumulate larger losses than you and hence making you close shop. The general strategy to adopt is the Best Cost Leadership Strategy. Here you focus on cheaper costs but only to a certain threshold and that too after ensuring it gives the best value in terms of the pricing.
Differentiation involves creating a product that is considered to be unique. A web host produces special plans for web hosting clients such that it stands out as a very unique offer. Presently we see many clients seem to offer first six months of hosting services free or some others provide domain registration free etc. These selling points that stand out helps ensure a web host to get better reviews and more sign ups.
To maintain this strategy the web host should have:
* strong research and development skills
* good cooperation with providers and advertisements
* strong marketing skills
* be able to communicate the importance of the differentiating factors of your plans offered compared to competitors.
* stress on continuous improvement and innovation of your web hosting plans etc.
* attract highly skilled, creative people to think and bring forward out of the box ideas to attract further customers such as adding very user friendly graphics on site, simple sign up systems, good support services etc.
Market Segmentation Strategy
This strategy involves focussing your attention on one certain niche area of the Web Hosting industry. Some Web Hosts prefer to focus on Budget Hosting and expect volumes in the form of short term clients to sign up. By giving budget hosts preference and stability, the hosting client is able to satisfy to a larger class of websites that range from movie release sites, to first time website creators etc. Other clients focus on reselling web space. Still others are there who focus on the market of providing dedicated servers to clients etc. You need to choose your Market Segment for you to be able to concentrate fully on its implementation and success. This becomes your core competency.
The way you focus on your core competency and work towards providing the best differentiation strategy as well best value cost strategy decides on the success of your web hosting business.
Examples of company skills or assets that could constitute a sustainable competitive advantage for a web host include:
* customer focus, superior ability to manage customer lifetime value
* superior quality of service. (Good server hardware, excellent bandwidth, data recoveries etc.)
* brand equity and positive reputation about the Web Host.
* low cost service provisioning techniques.( Cheaper servers, bandwidths, support etc)
* superior employees and management team to ensure responsibility and motivated work force.
Planning Strategies to address aspects of your web hosting business helps prepare you to face competition and gives you the upper hand in attracting more signups. If you do not have your strategies in place, as a Web Host, its high time you did this so that it helps you better understand the industry your in and where you would like to grow further in.
About the author:
Lijoe Chakiath works as Executive member in Bobcares.com. He is a Computer Engineer based in India and has over 4 years of experience in the Hosting industry.