I’ve been thinking about Dan Golding’s comment on my post from yesterday. If classic shared hosting is an endangered species, what’s next?
Many people I know would disagree that shared hosting’s days are numbered. After all, customers are continuing to sign up. And while they aren’t happy about churn, they think the solution is more consumer education and better customer service. But are informative newsletters and fast trouble ticket response times enough to save the day?
I think the answer is in this recent MarketWatch article. Bambi Francisco points out that Lycos, Excite and Alta Vista were once among the highest traffic sites on the web. Their portals generated huge amounts of revenue. Back in 2000, advertisers spent $3.8 billion on display ads, versus just $109 million on paid search. But fast forward a few years and paid search dominates. Google alone will have sold $7 billion+ in keyword ads in 2006.
Has the fortune of display ads declined because customers weren’t aware of the benefits of online advertising? Or did ad reps from Lycos, Excite and Alta Vista drive them away with poor service? I think the answer is neither. Instead, Bambi’s explanation is that Google has closed the audience/revenue gap.
Earlier search engines attracted enormous crowds way before Google was on anyone’s radar screen – but they didn’t monetize this particular type of traffic. Google, on the other hand, has managed to shape its product (Adwords) around consumer behavior (search).
Last night a friend and I were looking at 1&1′s hosting plans. She’s interested in building a website, and she thinks it’d be cool to have Live Chat. Unfortunately, that’s only available with 1&1′s larger hosting plan, which includes 100 GB storage and 1000 GB bandwidth. “Why can’t I buy the features I want separately instead of paying for capacity I’ll never use?” she asked. “It’s like a leasing agent telling someone that if they’d like a sofa in their office, they have to rent 100,000 square feet of space.”
[She doesn't know that hosting providers oversell bandwidth/disk space. She thinks if you sign up for a 100 GB plan, you get a dedicated "virtual hard drive" with that amount of space.]
I thought of her real estate analogy when I read today’s MarketWatch article on Cyworld. Cyworld offers free web space, in the form of 3D “minihomes”. It sells $300,000/day worth of virtual home decor: sofas, dining tables, paintings, etc. The company plans to offer branded virtual items from Gucci, Apple and Nike, soon. MarketWatch calls its approach a logical evolution in social networking, because it allows us to express ourselves through what we collect.
Might web hosting be headed in the same direction? The bandwidth + disk space formula clearly doesn’t reflect many customer’s views of their needs. The question is, what would be the equivalent of Google’s search and Cyworld’s virtual iPods in web hosting? In addition to storing and transferring data, what common and popular customer desires and activities can we create products around?
