Interview With 1&1 CEO Andreas Gauger

Interviewed by Liam Eagle, theWHIR.com

This article appeared in the October 2005 issue of Web Host Industry Review magazine. Click here to subscribe for free.

Watch the Video Interview at theWHIR.com/tv/agauger.cfm

October 24, 2005 -- (WEB HOST INDUSTRY REVIEW) -- Since introducing its North American operation in October of 2003 with a promotional offer of free hosting, 1&1 has faced criticism for – and gained customers numbering in the hundreds of thousands from – its unorthodox efforts to compete with the likes of Go Daddy and Yahoo! CEO Andreas Gauger spoke with us about his company’s efforts to conquer the US.

1&1 made quite a splash with its launch in the US. How much has the company grown since that point, compared to what you had anticipated?

Andreas Gauger: We started with our 100 day promotion for free hosting. After that we had something like 140,000 free customers. And since then, until the end of March this year, we have gained about 200,000 paid customers – and that’s better than we thought.

At the time of the launch, there were some criticisms of “you’ll get what you pay for.” But it seems that giving away hosting would make it particularly important to provide good service, considering the extent to which you’re relying on word of mouth.

AG: That was our goal. We wanted to get our brand known in the market. And to get the brand known, we had to offer some specialty. We tried that with our own product – just giving people our own product to try. And they did it very well, and I guess word was good because we made lots of paid customers.

There was some criticism of the strategy at first. But since then we’ve seen maybe half a dozen companies offering some variation of the free hosting promotion. It seems in this business that new things are criticized very harshly at first, but when they succeed, everybody gets right on board. Would the imitation affect 1&1?

AG: No. What we offered was free hosting for three years. This hasn’t been copied yet, as far as I’ve seen. And actually, good ideas are always criticized in the beginning and then copied.

Did people have a similar reaction to the loss-leader type approach to selling domain names? And did you guys have a big influence on that?

AG: I don’t think we were the only ones who influenced the market in that direction. Domains were sold at a price that was just far too high. It was big business for some companies that didn’t want [prices] to lower. And other companies that didn’t want to gain like 500 percent profit offered it for a reasonable price. Now we’re there saying we don’t want to earn money on domains at all. We want to sell Web hosting. And that did take the price down a little bit more.

For a company as large as 1&1, it is unusual that neither resellers nor acquisition seem to figure much into your plans. Is that a matter of policy, or is it something you would consider doing?

AG: I wouldn’t rule out that in the future we would grow through acquisitions too, because we have to grow very fast. We have a long track record of growing very fast, and we have to sustain that speed. But the reseller business is something special. It’s a completely different business from the end customer business. I don’t think we can do it with our team. But we might buy a company that is able to do it and work with them together.

How important is the smoothness of the system 1&1 uses to manage its technology, and how disrupted would that be by the process of integrating acquired customers?

AG: Our system was developed over the last ten years. It’s very sophisticated, completely automated, and we made lots of investment into the user interface. For two years we have been trying to build a better user interface with one face to the customer for all the features. If we were to acquire companies, we would certainly integrate them into our technology very fast, because that is just what we are all about – very easy-to-use products with all the features you need.

We’ve heard a lot of discussion and anticipation of big Internet brands like Google and eBay getting into the hosting business. Does that pose a threat to smaller hosting companies? What’s the potential impact of that eventuality for big companies like 1&1 that are already in that space?

AG: I don’t think that small companies have any problems there, because small companies typically rely on direct customer relationships and good service – knowing the customer and giving him exactly what he wants. I see more of a threat for bigger companies like Go Daddy and us, for example. They have big brands and big customer bases, and they know how to do business. So we have to have the better product.

Is that an eventuality that you then have to prepare for?

AG: One way we can compete there is that we are much more focused on that market, and we can typically sell for lower price points. We also look very carefully at what eBay and Google are doing, and we have very specific ideas about what they are doing, and what we will do against it.

Does this possibility create any opportunities for 1&1?

AG: Maybe. In Germany we experienced that we had one very fierce competition. And that made us so strong that we are now the biggest Web hosting company in the world.