This story appeared in "Ten Turning Points," featured in the September 2004 issue of Web Host Industry Review magazine. Click here to subscribe for free.
October 20, 2004 -- (WEB HOST INDUSTRY REVIEW) -- Like a highway system, bandwidth operates more smoothly when more lanes are available. When too many cars clog those lanes, traffic slows. And, like highway traffic, network traffic requires as much open bandwidth as possible to reach its destination at top speed.
Few factors affect the ability of Web hosting companies to deliver high-quality solutions to their customers as directly as bandwidth. It determines the volume of network traffic a host can handle at a given time, how fast that traffic travels between the host and user and establishes limits on what the host can realistically hope to provide.
The price placed on this valuable resource is inextricably intertwined with the business of Web hosting companies. It influences Web hosts' bottom lines, helps set the prices hosting companies charge for their services and even determines the breadth and quality of those services.
Bandwidth's profound influence on the business of Web hosting is neatly confirmed by the significant change in Web hosting brought on by the rapid rise in the availability of low-cost bandwidth. Prices for network capacity have been on a steady downward spiral for several years, slipping to near-commodity levels. Inexpensive bandwidth is endlessly available, allowing Web hosts to buy capacity in large, nearly unlimited, quantities.
Keith Duncan, Editor of Web hosting publication Ping! Zine, points to the entry of Cogent Communications (cogentco.com) into the telecommunications market as a key turning point in the rise of low-cost bandwidth. Back in 1999, Cogent stepped into the North American market offering wholesale bandwidth to Web hosts and other service providers at rock bottom prices. The sudden flood of affordable capacity helped intensify the price competition that was already squeezing margins industry-wide.
The benefits of dropping bandwidth prices reach the Web hosting customer almost immediately. In an industry as competitive as Web hosting, companies have almost no choice but to pass the savings on to their customers immediately.
"If you are not doing it, then someone else is already dropping their prices," says Haralds Jass, CEO of Superb Internet (superb.net). Customers enjoy better performance too. With more affordable, accessible bandwidth, download speeds are fast and reliable, and site operators are able to run more sophisticated applications and bandwidth-intensive content.
Ultimately, cheap and accessible bandwidth allows Web hosting companies to concentrate more resources on enhancing their existing service offerings.
"Cogent pricing has allowed Web hosting companies to offer more robust and competitive services without reducing the quality of network performance or customer support," says Dave Schaeffer, CEO of Cogent Communications. And it helps Web hosts deploy a more sophisticated variety of solutions, says Helen Chan, senior analyst at the Yankee Group.
Among the most significant influences of the spread of low-cost bandwidth is the change it has spawned in the economics of the hosting business, says Patrick Condon, co-founder of Rackspace Managed Hosting (rackspace.com), a trend felt most substantially toward the lower end of the market, in the growing discount dedicated server segment. The commodity pricing of network capacity has enabled Web hosts to offer previously unheard-of value for the dollar.
"Discount dedicated providers have been able to bundle remarkable value with their inexpensive offerings and have allowed customers to have an almost unlimited amount of bandwidth for a very low price," says Condon.
The new model has helped Web hosts to meet one of their biggest challenges, says Condon, allaying the fear, held by customers, of being hit with the unexpected expense of bandwidth overuse charges, an often-expensive side-effect of sudden spikes in traffic. Condon believes that delivering cost certainty to hosting customers is one of the most difficult tasks in the hosting business. And the spread of cheap bandwidth has done a lot to help resolve this dilemma, allowing hosting companies to offer customers a new piece of mind.
While bandwidth is certainly cheap, and increasingly ubiquitous, Condon warns that capacity "is not all created equal." Some carriers offer better performing bandwidth than those offering services at an exceedingly low rate. The cheapest bandwidth, more often than not, is not the best performing.
There certainly remain more expensive, premium bandwidth options. But bandwidth in general is inching closer to becoming a commodity. And as it moves in that direction, smaller and medium-sized hosts stand to gain as it becomes easier for them to find the economies of scale they need in order to develop more advanced hosting solutions.
