Buying a Hosting Company: Part One

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Several years ago I remember heated debates between individuals refusing to accept that hosting companies ergo their subscribers were commodities. In the retail shared hosting space, the customer is akin to a cable TV customer, or a Coca-Cola bottling plant. In each case, you pretty much know how much you are going to gross each month.

Yes, there is a stratosphere of hosting companies. If you are aggressively pricing your services to match or beat your competition, you are probably a commodity.

In growing your company, you can sit back and beat your head against the wall, tweaking AdWords, affiliate packages and painstaking SEO ventures into space. All of which is good, and should grow your business over time. You will probably add customers at a cost less than acquisition.

For this exercise, I assume you prefer not to be a tortoise, but the rabbit. The acquisition route may cost you more per customer, but there’s no faster way to grow your company than by acquiring another company. The benefits should be worth it. Acquisitions are tricky; paramount above any advice I may give is that your transaction should make solid business sense.

Determine your strategy

Four reasons to acquire a company rather than growing organically:

  1. Increase market share. Buy a company that is directly competitive to your own thereby securing its customer base. Rather than duking it out on that Top 10 best hosting list, you don’t have to fight those competitive battles. Perfect for those commodity firms. The size of your company can grow overnight. In most cases you will spread SG&A over a larger base and your margins should increase.
  2. Expand into new markets. There is always a new market to attack in hosting; what is the new “as a Service”? Acquire a company whose products are complementary to your current products, in the expectation that the sum of the parts will be greater than the whole.
  3. Obtain advanced technology. It is one thing to want to become a high-end managed company, it may be another thing to assemble the entire suite of technology, equipment and software that pulls it all together. You acquire a company that has the complete package that would be difficult or time-consuming for you to develop yourself in-house.
  4. Get hard-to-find personnel. Not only acquire a company that employs a set of highly-skilled employees, but also a team rather than going through the time-consuming process of recruiting them individually.

Getting a hold of strategy is just a start. Conducting an acquisition program is hard work. Over the next several weeks we will summarize the high points to make you just a bit dangerous.

Later, Tom

Find out more about Tom Millitzer: Millitzer Capital FB

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