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 8, 2004 -- (WEB HOST INDUSTRY REVIEW) -- The private label reseller market has exploded in the last year, with much of the growth coming from Web designers looking to provide hosting as a value-added service to their clients.
Through reseller relationships, developers and other businesses can market the services of larger Web hosts, with the reseller establishing its own pricing and creating its own pages with its own logos and brand-related visuals.
Reseller hosting programs vary between the big hosts, and even within them, with some resellers taking on simple affiliate marketing roles, and others assuming every responsibility but the server management. The models are varied, but reseller hosting in general is gaining steam as a market expansion concept. It allows the smaller player to appear more like a big-league Web host. And this is a good thing, their partnering hosts say.
"It's attractive to them because they already have a little bit of technical knowledge with their design skills," says Rob Moore, president of Web host RoundBerry.com. "Their customers definitely need Web hosting, and this makes for a recurring revenue stream."
For all the obvious technological advantages the relationship provides the resellers, the army of agents spreading hosting services at ground level has been of immeasurable benefit to the larger providers, enabling them to reach customers that would otherwise go undetected. Clearly, a Web host — no matter how large, no matter the breadth and depth of its sales force — can't be ubiquitous. Teaming up with resellers simply adds to the hosting company's reach.
"It's a valuable resource that should never be underestimated," says Christopher Faulkner, CEO of Web host C I Host. "These connections equal profits — financially rewarding for both parties. For the reseller, it's as if someone handed you a fishing pole and bait and told you where a huge school of fish is waiting, and you did the actual fishing. The combined effort allows both the host and the resellers to enjoy a great 'catch.' There is no limit on how much the right reseller-provider relationship can increase a reseller's revenue."
It has also grown because hosting companies have discovered that it's more bottom-line friendly to create a channel for value-added resale of hosting services, but let the reseller and customer decide specifics for add-on services such as colocation and bandwidth boosts.
"Colo and bandwidth are commodities," says Richard Dym, chief marketing officer of IT infrastructure provider OpSource, which is working as a reseller with hosting companies. "Private label hosting offers a complete solution to drive the business. We're seeing increased interest in the real estate industry, as companies there have bought bankrupt properties from colo companies, and want to see private labelers sell the products and services they've acquired there."
It helps that resellers — at least the serious ones — are continuing to develop hosting skills. C I Host started out dealing with resellers who sold small, shared accounts. Today, those reseller partners are managing servers and reselling off their own dedicated servers. The successful ones are determined to present themselves as completely knowledgeable about every tech-related aspect of their business — not to mention the host's own policies.
"Private label hosting with resellers provides an advantage that doesn't take away from your image while giving your sales a boost," Faulkner says. "It's smart and effective. The relationship among resellers and hosts is stable and strong and will continue to grow in that direction in the future. There's no denying that reseller agreements are a great way to expand sales reach and market penetration without investing in a large, direct sales force. This fact is becoming more prevalent with a flustering economy."
That is, as long as the resellers are exploring the right questions about themselves, in providing value-added services to the host. "They should be asking themselves, 'Am I reaching customers that my hosting company can't otherwise reach?'" says John Lee, vice president of marketing at Hostway. "Am I providing service that my hosting company can't provide?"
On the providers' side, the greater obligation is to honestly serve the reseller community. Web hosts operating reseller programs obviously run the risk of competing against their own resellers with their consumer brands.
"Even those companies that claim to serve the reseller market 100 percent of the time will be found to have end-user brands that you don't know about," says Lee. "That said, the thing we've learned from our six years of operation is that customers' hosting needs are diverse and no one company can meet them all alone. Right now, we have 10,000 players all doing the same thing. The next phase will see true diversification, with 10,000 players all doing different things with a few players providing the underlying infrastructure. It will be interesting to see."
