This article appears in the June 2005 issue of Web Host Industry Review magazine. Click here to subscribe for free.
June 10, 2005 -- (WEB HOST INDUSTRY REVIEW) -- One and one hardly seemed to describe the strategy of Web hosting firm and domain seller 1&1 Internet (oneandone.co.uk) as customers criticized the significant gap between the company's pricing of domain names in the US and its prices in the UK, where a .com domain goes for about three times the American price at £10.45.
There is an understanding that different regional markets may require different pricing. And customers and experts agree that a complete and reliable solution ? both in domain services and the accompanying Web hosting services ? is more important than the price across the pond. But the price difference certainly draws its detractors, competitors among them, of course.
US-based domain registrar and hosting player Go Daddy (godaddy.com) says 1&1 is offering domains to Canadian and American buyers for as little as $5.99 because it is pursuing local market share. Certainly the competition is more cut-rate in North America, where Go Daddy itself recently launched a promotion offering domains for $3.99 with the purchase of another product.
"What 1&1 is trying to do is break into the US market," says GoDaddy founder and president Bob Parsons. "They're doing it by giving the product away and selling it below cost. They're taking a beating here and they have to make money somewhere ? so they're looking to Europe."
Parsons boasts that GoDaddy's prices for domains and other services are the same across the board, and have been since the company started in 2000.
"[Go Daddy's price] is based on our business model and market," he said. "We have a fair profit and competitive price, and it's the same thing for hosting and everything else."
1&1's explanation of the price difference is lengthier, and more involved. The company says it puts a great deal of work into determining the prices of services for different regions, including taxes, market specifications, cost structures and features.
"At 1&1, we have found markets to be so different that we actually employ dedicated product managers at each of our locations," says 1&1 North America CEO Thomas Vollrath in an email response. "These people are continuously monitoring market conditions to determine fair pricing structures, among many other things. Individual market demands also determine product features, which, in turn, influences price . . . Certain features included in the packages we offer in the US may not stand up against the competition in the UK, or vice versa. Obviously, if we have to offer more of a particular feature to stay competitive in one country, we must also adjust the price accordingly. But again, this is all determined by country-specific market analysis and research. It's not just some arbitrary decision to make something more expensive in one place than it is in another."
Vollrath said it would be impossible for someone in the UK to purchase service through its U.S. office without a mailing address in the US or Canada. While he acknowledged the large price difference by region had caused some customer concern, he says the markets for domains and hosting services are in fact very localized.
"The regional pricing matter is one that seems to have only come to the fore very recently, and it's not difficult to see how users would perceive it to be an issue," Vollrath wrote. "But again, prices for Web hosting vary by geographic location the same way the price of practically anything is different according to location. It's probably more difficult for people to accept this with Web services because the Internet isn't perceived to be a local thing. And this is true to a point. It is after all the World Wide Web. But to an extent greater than most people realize, the Internet business is local, or at least there is a great regional or local influence involved in making it work."
Frost and Sullivan industry analyst Jarad Carleton says that although companies may intentionally make their pricing confusing to customers of different regions, it may make sense to charge more in some places depending on local personnel, different overhead and other costs.
Carleton said that for the small to medium sized business market ? the target of both 1&1 and GoDaddy ? customer companies and individuals are willing to pay a fair market price, are far more concerned that the package they pay for solves their Web needs.
"These people are pretty hard pressed just to sort through the small to medium Web hosting companies out there," he said. "When it comes down to it, they want something that feels like a fair price, and after they've made their decision, they don't really want to hear about it anymore."
While 1&1's pricing differences may have become an issue recently, the company's pricing model is not a recent development. And in January of 2005, just a year after the popular European provider launched its North American operation, the company announced that it had been identified by research firm Netcraft as the year's fastest-growing Web host.
