In the real world, it’s difficult enough to get people to part with their money, but as the Internet grows (bearing with it a philosophy of free communication and expression) there has always been present an expectation of free online services. In an email Q&A, AIT chief executive officer Clarence Briggs explains how offering free services can make web hosts money, as AIT rolls out a free hosting offer.
(WEB HOST INDUSTRY REVIEW) — In early June, web host and domain registrar AIT (www.ait.com) launched a free web hosting account offering for life, giving businesses and individuals risk-free and advertising-free website hosting at their own domain name, featuring 10 GB of web space, 1,000 email accounts, and 500 GB of data transfer.
The limited time promotion offers a free hosting account giving users features to help their web presence including a free site builder, web statistics analysis and visibility on AIT’s search engine, tyBit (www.tyBit.com), to make their core products and services visible to web users.
AIT sales and marketing vice president Avery Skelton said the goal of the free hosting offer was to introduce both AIT and tyBit to a wider audience, bringing hundreds of new sign-ups per week. The assumption was that customers would be impressed enough to purchase additional services in a way that benefits both buyer and seller.
AIT isn’t the only company enticing customers using the ever powerful “free” label, as a quick trip to Google will readily reveal. However, free hosting isn’t always an attractive avenue for the provider, as Yahoo demonstrated this summer by announcing plans to shut down the venerable GeoCities service, the standard-bearer for free hosting.
In an email discussion with the WHIR, AIT chief executive officer Clarence Briggs describes how he believes the “free” model can make web hosts money, and what AIT hopes to gain from rolling out free hosting.
The WHIR: Launched in early July, AIT’s free hosting offer was rolled out at the supposed dawn of the “Free” movement, heralded by Wired editor Chris Anderson in his new book, “Free: The Future of a Radical Price.” Anderson postulates that digital infrastructure is effectively free, consumers love free, one never has to say they’re sorry (complaints can be brushed off with a simple, “Give me a break — I gave you it for free!”), and consumers enticed by free services can mean lots of money for businesses. How does AIT fit or deviate from Anderson’s mold?
Clarence Briggs: The fit is simple. As early as 1995 web hosts charged a set up fee and also per domain. Now, set up fees for simple business hosting don’t exist and there isn’t a per domain hosting fee for virtual hosts anymore. The same is true for shopping carts and other add-ons. At one time, web hosts could charge for these, now they are bundled with other products and services for free.
If the free hosting promotion is meant to introduce AIT and tyBit to a wider audience, is there a risk that the audience attracted by this offer is simply looking for a free deal and not interested in paying for hosting or any other service?
CB: Sure. There is always that. But let’s look for a moment at reality. Typically, the largest expenses for a web host much like any other company is payroll, technology and marketing. Much of the cost allocation for payroll and technology is for sales and marketing or customer acquisition. Offering “Free” for low margin products and services is a natural and great way to cut the cost of customer acquisition. A lot of criticism simply misses that the “free” business model isn’t just about giving stuff away and hoping for a miracle. It’s about leveraging the free stuff to sell complementary goods in a way that benefits both buyer and seller. Look at it this way. What would you pay to get warm leads for sales?
Classic economic theory dictates that in a competitive market, the price of a good or service is reduced to the marginal cost to produce it. The marginal cost, of course, factors in materials, wages and any other costs. This model leaves no room for long-term profit, but it does pay the cost of producing the service. Offering services for free essentially means that part of the company’s profit goes towards paying wages and infrastructure costs to support the “freeloaders” (so-to-speak). How does a company create a profitable balance when deciding what to give away for free, and what to charge for?
CB: I think I spoke to this somewhat but let me elaborate. If you cannot sell something at a significant profit any longer, then you have reached the point of commoditization. Once that happens, you have to ask yourself whether you can leverage the “marketing sizzle” of offering that something for free in order to up sell more profitable product and service lines. The materials, wages and other costs that it took to roll out the one time profitable, but now free, product is a sunk cost. You either made your money back or did not. Competition pushes prices down to their marginal cost. The PC industry is a perfect example and the manufacturers make their real margin on leasing, service customization and more. Like any other industry, constant innovation with new permutations is critical for any company to succeed.
If people expect web services such as hosting to be free, should shared web hosts be changing their core business from web hosting to web services such as web design or customer support?
CB: I think each web host has to make its own decisions. Some have moved to high end, complex hosting. Some have focused on reseller, email or other niche areas. At AIT we have always developed our own technology and not relied upon third party technology. Software development is very big here and always has been. We have a team of on-site engineers located here in the US and not overseas that is very responsive to the rest of the company and our customers. We literally built tyBit.com, a full blown search engine with the 3rd patented PPP/PPC ad module in the world. Yahoo and Google share the 361 Overture patent and technology. MSN or Bing use the second patent and we have built and rolled out our own. The respective acquisitions of the first two patents exceeds $1 billion each.
AIT’s no-cost, ad-free web hosting offer is a limited time promotion. From the response you’ve seen in the weeks since it launched, is there are chance that AIT will introduce a permanent free hosting plan?
CB: I would have to say the answer is yes. Many can provide web hosting services these days. Only a few companies own the core technology and can really deliver precision interactive advertising. We have been in business for 14 years now, profitable and with no outside funding. It is important to go where others are not first. If you do that you are either in the right spot before the right time, or you have really screwed up. The key is to know and understand the difference between the two.
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