Working With a Reseller

By Doug Kaye

July 26, 2002 -- (WEB HOST INDUSTRY REVIEW) -- In the early days of the Web, most small-business web sites were hosted by local ISPs who did so as an adjunct to their core business. So-called professional hosting was reserved for well-funded dot-coms and larger enterprises. But as the Web matured, and major ISPs poured billions of dollars into new Internet data centers (IDCs), small web-hosting vendors found it impossible to provide competitive infrastructure. Given the abundance of high-quality IDC space and connectivity today, even the smallest small or medium enterprise (SME) should expect to have its web site hosted in a first-class facility with the same redundant power, air-conditioning and Internet connectivity once reserved for the big guys.

The small entrepreneurial web-hosting vendor still exists, but he’s no longer in the infrastructure business. He’s now a reseller — a company that buys web-hosting capacity from a larger wholesaler, adds value in the form of services such as site design and content management, and delivers a complete package to SMEs. By some estimates, 65% of all SMEs in the U.S. use resellers who, on average, have 10-15 clients each.

At first, the practice of reselling was considered deceptive, and today there are still some resellers who attempt to hide what they’re doing from their customers. They’re trying to give the impression that they’re larger and more substantial than they really are. Personally, I’d rather have my reseller be honest about what it does in house versus what it outsources. I have no problem with—in fact I prefer—a reseller that leverages the infrastructure of a much-larger company. But why keep it a secret? There’s nothing fundamentally wrong with the private-label concept, and the better resellers recognize that both they and the wholesale vendors are providing unique value to the end customer. These resellers understand that it makes more sense for the customer to know exactly what’s happening.

Resellers are the ideal hosting solution for any SME without in-house technical expertise. It’s rarely effective for SMEs to work directly with the major vendors, who are unable to provide the personalized (and inexpensive) services that SMEs require. The large vendors are only equipped to deal directly with major accounts or as wholesalers to the resellers.

Most resellers’ businesses are built geographically; they’re all about servicing the needs of the SMEs in a town, county or metropolitan area. Because of their proximity, they can provide personalized face-to-face services. Other resellers, particularly those that are also computer-system value-added resellers (VARs), instead specialize in industry-specific vertical markets. For example, a VAR/reseller might provide a broad array of services to law firms, including not only web hosting, but also software customization, LAN installation and support.

Working with a reseller is not without its risks, however. The keys to success are to be an informed buyer, to select your reseller carefully, and to manage the relationship on an on-going basis. Here are some of the risks and what you can do to protect yourself from them:

1. It’s okay to sign a long-term contract, but don’t pre-pay a reseller more than a few months in advance. Resellers are SMEs themselves. Many of these companies aren’t well financed, and their owners aren’t particularly good businesspeople. A reseller that delivers great service one day can be out of business the next. If your annual prepayment finances your reseller’s cash flow, where will the reseller’s cash come from for the rest of the year?

2. Find a reseller that uses shared or clustered servers, in which case the wholesaler is responsible for providing enough hardware for all sites to perform well. When using dedicated or virtual servers, some resellers are tempted to run too many of their clients’ web sites on each box. The reseller pockets more money, but the performance of the web sites suffers. (Test the performance of a reseller’s existing clients’ sites using a broadband connection.)

3. Register your own Internet domain, and list yourself as the billing and administrative contacts in case you need to switch vendors and your reseller becomes less than cooperative.

4. Don’t allow your reseller to base your web site on proprietary tools or utilities. You won’t be able to move your site to another reseller or hosting facility.

5. Always keep copies of any web-site content developed by your reseller.

6. Check out the quality and stability of the wholesaler supplying the reseller. If the reseller is private labeling the wholesaler’s services and won’t disclose the name of the wholesaler, go somewhere else.

7. Ask for and check reference accounts. Learn to read between the lines when asking other clients about problems they may have encountered with the reseller.

8. Always have an exit strategy. Be prepared to move your web site to another reseller and wholesaler.