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There's a huge barrier to entry in getting into the data center biz. A modern data center with reasonable power density costs $1300/sq ft. There is relatively little barrier to entry in becoming a mass market hoster.

Enterprises, driven by blade servers and SOX are going into outsourced data centers. There has also been huge growth in content providers. Space is limited and banks have been slow to finance new builds, having been stung. That has driven per sqft rates sky-high.

Its all about margins and supply. Data centers: high margins (even just colo, without managed svc) and demand beating supply. Commodity hosters? Low margins, huge supply.

Well... shared hosting generates relatively high profit margins, and dedicated hosting isn't the cheapest business to get into. I think the major challenge that mass market hosting providers face - and Savvis/Equinix/Internap don't - is churn. If you become a Savvis customer, you will most likely remain one for quite some time. But if you sign up for a sub-$100 hosting plan, your switching cost is minimal - as is your loyalty to the provider.

If we look behind web hosting and think about MySpace, YouTube - and even Yahoo's recent $10 million acquisition of MyBlogLog - all of these businesses were valued based on the stickiness of their user base. Their buyers assumed that their audiences would be available for future monetization. That's not something Web.com's investors can count on.

And the worst part is, mass market hosting customers are expensive. On the high end, GoDaddy advertises in the Super Bowl. On the low end, many smaller providers pay outrageous affiliate commissions for customer referrals. But at the end of the day, what they get are customers whose needs can just as easily be met by any number of competitors...

And in terms of mass market hosting customers being more expensive...this is very true. Colo providers have much large ARPU, and probably have less in terms of support costs, even per customer - most colo customers are self supporting. In terms of ARPU - plenty of colo customers will pay $3000/month/rack, all told with power and cross-connects. And most have many racks.

Churn is actually a big plus for the colo companies these days - they are deliberately trying to boost churn, in order to perform what they call "customer optimization" - out with cheap legacy customers (some of whom are power hogs), in with higher paying new customers.

In terms of barriers to entry - sure, it costs a lot of capex for servers, but you can buy them as you go, and leasing is usually (relatively) easy. A modern colo facility costs $100mn, with upfront financing needed.