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So you want to start your own web hosting company

By Valur in Op-Ed
Wed Aug 13, 2003 at 05:39:20 AM EST
Tags: Internet (all tags)

Web hosting can be a great way to work from home and put your internet skills to good use. As a full-time college student, I've been running a small web hosting company since June of 2002 that has grown to include customers in Canada, the United Kingdom, the Netherlands, and the United States. This article shares the lessons I've learned and my advice to anyone considering going into the business. It isn't a comprehensive guide, but provide enough information to get started in your search. The focus is on business and logistics aspects, rather than the technical nitty-gritty of system administration. Read on for more information.


Web hosting is not a way to get rich quick. It's hard work and requires strong skills in sales, system administration, and customer service. However, it differs from other types of businesses in that it is the most conducive to telecommuting. As a full-time student, I'm able to field support requests and run the server from home, or between lectures thanks to the campus-wide wireless network. My little company has no office, nor does it need any.

If you're technically inclined, spend far too much time online, and enjoy helping others, this could be the perfect job for you. At the same time, web hosting is an enormous committment. You're offering a service that's supposed to be up and running 24 hours a day, seven days a week. Your servers can go down at the worst possible times. Think long and hard about the ethical obligations that come with offering web hosting so that you can provide the product you're offering.

Where are your servers?

There are five options for where you can keep your servers, and who owns them:

Resellers: A "reseller account" is a special sort of shared account on a server. Although you don't have root level access, a web-based control panel permits you to add domains and accounts. You're responsible for what your customers do on the server. A reseller account is great for getting started, or if you feel that your system administration skills aren't as strong as they should be to go into business. The downside is, if your host is a poor one, you're essentially at their mercy. If their server is hacked or goes down for some reason, you might not even know why they're down, and you have to wait for them to fix it rather than fixing it yourself. The most popular form of control panel software for this is CPanel.

Virtual Dedicated Servers: A virtual dedicated server appears to be its own unique server, on which you have root level access. However, multiple copies of Linux share a set of hardware. This has many of the strengths of a reseller arrangement with greater flexibility. A few advertisers on K5 offer Virtual Dedicated Servers with good support, and it's worth checking them out.

Colocation: Locating your hardware in a cabinet in a data center, where you have 24/7 physical access is another option. This option is very flexible, you can build your own servers and determine how your network is set up. Setting up a private network or a firewall is easy: you hook up the equipment yourself. The data center merely provides electric and a fast connection to the internet. This is typically expensive but offers you free reign over your hardware configuration. On the other hand, you're responsible for your own hardware so if a motherboard fails at 3:00AM you'll be the one that has to drive to the data center and get it working again.

The Data Center at Home: This option isn't recommended at all unless you're lucky enough to live in a location where you can get high quality bandwidth very cheaply. Even so, it's a very expensive proposition. Assuming you can secure high quality bandwidth to your home (DSL or cable modems don't count), you still have to worry about uninterrupted power, climate control, security and many other concerns.

Rented Server: This is what I ended up deciding on. With a rented server, the data server owns the hardware and rents it to you. The advantage is that they're responsiblef or the hardware: if one component fails, they can swap in a new component. This leads to even faster hardware repairs times than colocation because there's always a tech there to perform the repairs. Additionally, data centers are able to buy servers in bulk, cutting down the hardware costs dramatically. One such company, known to buy as many as 2,000 servers at a time, is RackShack.

Who are your customers?

You aren't likely to pick up many customers as strangers off of the internet, although it happens occasionally. You're competing with large corporations and people willing to give away free hosting. That leaves a few groups as possible customers:

Niche market: There's lots of competition for web hosting, but can you offer a server product that is hard to find? I offer MUD hosting with shell access because it's a niche market. By catering to a "small" community, I've developed a reputation in that community and meet a specific need. Can you find a niche that you can fill?

Local market: Small businesses in your area probably get their web hosting through their local ISP. In most cases ISPs over-charge for this service because it isn't their specialty. By directly targetting the local businesses in your area you may be able to capture their business and save them some money.

Web designers: Two of my friends are web designers. They hate system administration. For this reason, a symbiosis was formed: whenever they design a web site for someone, they sign them up for hosting with me. Since they know me personally, they know I'm not going to rip them off.

Personal network: A personal network is critical to any entreprenurial endeavor. If you're good with computers and the internet, the odds are many of people you know are aware of your skills and hold some respect for you. Most people would rather be hosted by someone they know personally than some faceless corporation in another state. All the better if you can save them some money in the process.

WebHosting Talk deserves its own category because it's so important to many small web hosting providers. WHT offers forums where clients are matched up with hosts' offers. Unfortunately, there is intensive price pressure brought about by new hosts and hosts that oversell. Unless you're willing to practically give away service, you'll only be able to attract a few clients.

Book-keeping and pricing

Billing for web hosting services can be problematic so it's important that you always get payment for services at least a month in advance. Many small hosting providers use PayPal or 2Checkout for electronic billing of customers.

Set your price to something reasonable, that people can afford. At the same time, avoid trying to be the cheapest: you can't compete with hosts who are overcrowding their servers and offering poor service at dirt cheap prices.

Keep good records of company's finances because small problems book-keeping problems can grow quickly. If you do go to the trouble of getting a merchant account, storing credit card numbers on your server is a tremendous liability that I would not recommend. It is better to use a 3rd party service or to store the card numbers offline on your local workstation.

Absolute Essentials

There are some things you can't do without in this business.

A Business Partner That You Trust: Starting a web hosting business alone isn't recommended. Web hosting is a 24/7 service and outages or other crises must be responded to quickly. Wouldn't you like to be able to go on vacation? Or go on a date without fear of your cell phone going off? You need at least one other person you can rely on. This also doubles the number of personal network customers you'll pick up.

Server Monitoring: It's important that you know immediately if a server goes down. I use Alertra to monitor my equipment. If it goes down, Alertra sets off my cell phone and that of my business partner within 15 minutes of the outage. My customers also have my cell phone so that they can contact me if they're unable to access their web site.

An E-mail List: Keep an e-mail list, preferably off of your own servers to notify your customers in the event of a scheduled or un-scheduled outage or anything else that may affect your service. It can save you the trouble of answering the same question fifty times when they all encounter the same problem. Customers like to be notified in advance rather than encountering a problem and having to pester you about it.

Redundant Net Access: You should have a backup for your main connection to the internet just in case it goes down. This is also where having a partner helps: if you're stranded offline odds are your business partner won't be.

Dangers to Watch Out For

There are a few outstanding dangers that plague web hosting businesses:

Problematic customers: Every business has them, and these few can take up most of your time. There are a few steps to minimizing the amount of problem customers you encounter. The first has to do with price: free and extremely cheap accounts attract people who are only motivated by price. This reflects a poor understanding of web hosting that will come out in the form of constant support requests and complaints from them. In your TOS (terms of service), be sure to include a clause that allows you to close an account if a customer becomes abusive or overly obnoxious. I'm polite and professional in all of my correpsondences, and I expect the same from people I do business with. If they're terribly rude, I will simply refund them and tell them to find another host.

Hackers: Keep your server up to date with the latest patches offered, and keep any unnecessary services turned off. One of these unnecessary services is FTP. FTP is just as insecure as telnet and should be replaced by SFTP. Despite your best efforts, your system may be compromised anyway. Always keep an eye on it for any changes or suspicious activity. If you're hacked, odds are it will be to use your server for nefarious purposes. If you discover the security breach right away, you may be able to prevent this.

Data loss: Make it clear to your customers that you expect them to back up their own data -- just in case. Then make backups of their data anyway. Customers can and do delete their own content by accident, so if you're prepared for this conteingency you'll be their hero.


Web hosting is hard work and represents a competitive, mature market on the web. But there are still opportunities for a rewarding and challenging job that doesn't tie you to any one geographic location.


Voxel dot net
o Managed Hosting
o VoxCAST Content Delivery
o Raw Infrastructure


Related Links
o CPanel
o RackShack
o WebHosting Talk
o PayPal
o 2Checkout
o Alertra
o Also by Valur

Display: Sort:
So you want to start your own web hosting company | 51 comments (39 topical, 12 editorial, 0 hidden)
Useful information... (4.33 / 3) (#2)
by GavalinB on Tue Aug 12, 2003 at 09:20:16 PM EST

And handy as a quick overview for folks who are considering diving into this line of work.
The Future is Prologue: Join Our Sagas Today!
Except for shattering my dream of (none / 0) (#44)
by porkchop_d_clown on Wed Aug 13, 2003 at 11:47:09 AM EST

running the company out of my basement. :-P

His men will follow him anywhere, but only out of morbid curiousity.

[ Parent ]
Good God (3.25 / 4) (#5)
by p3d0 on Tue Aug 12, 2003 at 09:41:51 PM EST

I was just musing about this a couple of days ago. Thanks for posting this!
Patrick Doyle
My comments do not reflect the opinions of my employer.
Business in commodity markets (3.90 / 10) (#10)
by cbraga on Tue Aug 12, 2003 at 09:48:57 PM EST

What are commodities? Gold, silver, coffee, rice, shampoo, fast-food, CPUs and, to a great extent, webhosting are commodity products/markets. Why? Because there's no difference between two kilos of gold. Or, in the case of CPUs and webhosting, you can measure the differences precisely such as between two CPUs, 800 MHz and 1.6 GHz; or between two co-location plans with similar infrastructure and support (and they're all mostly similar). The point is that in a commodity market service is the same all around, with small differences between companies, and price becomes somewhat fixed.

Commodity markets have high barriers to entry and are typically dependant on scale to be profitable.

High barrier to entry means that you either have to spend lots of cash in advertising up front to grab a piece of the pie or that you have to find an unexplored niche (such as given in the article) which allows you to charge a premium and become profitable with less spending on publicity and less scale.

Dependency on scale means that the players on such market are BIG. They have many, many customers and due to the volume of their sales they save money overall and can charge less than a competitor with smaller volume, while remaining profitable.

This all boils down to this: you either spend a lot of money to become big fast, and cash on scale, or you start in a niche while being unable to outgrow this niche (and other niches) because you'll never have the scale to compete with the big players.

I ask of the author of the story if his business is really profitable. By really profitable I mean not that there's a positive net cash flow, but rather that if he discounted his own salary from the cash flow, as if he were a paid employee, would the cash flow remain positive? It might, but perhaps in this light it would not be an attractive business anymore.

Also, is his niche market a real niche? He offers MUD hosting with shell access. Is this something that would give me a lot of trouble installing in another webhosting company? If so, it's a real niche which provides a safe harbour for his company. If not, it's just a gimmick to attract new customers.

ESC[78;89;13p ESC[110;121;13p

To answer your question (3.50 / 4) (#15)
by Valur on Tue Aug 12, 2003 at 10:27:37 PM EST

There is one critical difference between a commodity market and web hosting. Suppose that I sell you a bar of gold, a bag of gold, or a bar of shampoo. Once the transaction is over, you have no further need of me. Web hosting is a service industry because it requires continual work from the system administrator. People are paying for the service they get: waking up at 3:00AM to fix the server is my cell phone goes off, answering their e-mails, helping them through technical problems. To answer your question, yes, it's profitable and I consider it a decent salary for a part-time job. I'm happy with this part-time job, in fact, it's the best part-time job I've ever had. This article was aimed at those who are looking to put their skills to use. It's one thing to host part-time for pizza money, and quite another to expect it to be a full-time source of income. These days most web hosting companies are reluctant to offer shell access or allow background processes. I explicitly advertise doing so, plus I'm familiar with MUDs and MUSHes so I don't feel that it's an advertising gimmick.

Hosting for creators: RPG-Works.Net
[ Parent ]
Still a commodity service then (3.00 / 2) (#17)
by cbraga on Tue Aug 12, 2003 at 10:35:06 PM EST

You see, the fact that it's a service industry doesn't make it less of a commodity. My point was, that all webhosting is about the same: you put a website up on the Internet. There are different levels, such as you described in the article, but within a level they're all commodities in the sense that I can go anywhere and expect pretty much the same service for pretty much the same price. So your service has a differential, allowing shell accounts, background processes and MUDs. That's good, that's what'll let you charge that extra bit to keep you afloat against with big dogs. Glad to hear it's making a profit. Best of luck.

ESC[78;89;13p ESC[110;121;13p
[ Parent ]
arrogant (1.40 / 5) (#22)
by Nomak on Wed Aug 13, 2003 at 01:27:24 AM EST

All you have is to censor and cannot make a conversation. Why is there civilization with you silencing?

[ Parent ]
Because you can't write English? /nt (2.40 / 5) (#25)
by cbraga on Wed Aug 13, 2003 at 01:42:23 AM EST

ESC[78;89;13p ESC[110;121;13p
[ Parent ]
Business in commodity markets (5.00 / 2) (#48)
by ronivi on Wed Aug 13, 2003 at 02:46:48 PM EST

cbraga wrote ...if his business is really profitable...

If subtracting his salary, you might also want ot add back whatever fixed costs he already had.

If he was hosting a site of his own, and rented out extra capacity, it's of no cost to him. Using your gold analogy, if you had a business that spun-off extra waste-gold each month and sold it, it's mostly profit.

That's why I was thinking of selling web hosting myself. I found his article quite interesting.

[ Parent ]

Very true /nt (none / 0) (#49)
by cbraga on Wed Aug 13, 2003 at 02:58:22 PM EST

ESC[78;89;13p ESC[110;121;13p
[ Parent ]
Not that I'm planning to go into Hosting.... (4.00 / 2) (#12)
by LittleZephyr on Tue Aug 12, 2003 at 10:00:33 PM EST

...But I loved this article. As a person that does buy webhosting (DreamHost) it's nice tom know what kind of things these people are doing to make sure I get my service provided.
(\♥/) What if instead of posting that comment,
(0.-) you had actually taken a knife and stabbed
("_") me in the eye? You murderer. ~ Rusty

Dear Captain Five-Comments: (1.58 / 34) (#13)
by lyingflamebot on Tue Aug 12, 2003 at 10:01:08 PM EST

Here at K5, when you are pimping your goddamned dead-dog-slow nerd-hosting service, which you would most likely collapse under the burden of a real client, it is customary to


particularly when your hosting service is only of use to D&D nerds who need to be watched 24 hours a day, lest they shoot up their high-schools.

Please pull this entirely self-serving "story" immediately.

Thanks in advance.

IHBT (4.25 / 4) (#16)
by motty on Tue Aug 12, 2003 at 10:28:51 PM EST

You are seeing ads that are simply not there.

[ Parent ]

Come on, man. (2.10 / 10) (#18)
by lyingflamebot on Tue Aug 12, 2003 at 10:45:57 PM EST

What more proof do you need that this piece-of-crap article is nothing more than cheap hucksterism?

Let's see... one rental provider listed, one admin tool listed, one monitoring tool listed...

and they've all got referral programs. And no discussion whatsoever of OSS alternatives?

Wake up, pal.

[ Parent ]

Ah, there we go. (1.63 / 11) (#19)
by lyingflamebot on Tue Aug 12, 2003 at 11:02:13 PM EST

And now a "1" rating from the perpetrator himself, in a pathetic attempt to squash the truth.

Classy, "Valur." Real classy.

Go on now, change it. You know you want to.

[ Parent ]

Stop censoring lyingflamebot you scumbags! (3.80 / 5) (#31)
by Ta bu shi da yu on Wed Aug 13, 2003 at 04:18:01 AM EST

Stop it this instant!

lyingflamebot, thank you for exposing the treacherous "Valur" to us all. Without your careful investigative work we might have been fooled into voting this story up.

Now we see Valur censoring people who are willing to risk it all to reveal the truth! Truly the man is subverting the K5 ratings system with his magical one values. Without lyingflamebot's help we would never have realised that he's been censoring those who put the neck out by hiding their comments with one ratings!

I congratulate you, lyingflamebot, for your brilliant expose on this decieptful user. Keep up the good work.

Yours humbly,
Ta bù shì dà yú

AdTIה"the think tank that didn't".
[ Parent ]

Hmmm. (3.00 / 3) (#38)
by Ta bu shi da yu on Wed Aug 13, 2003 at 06:12:46 AM EST

What an ironic turn of events the rating on that comment has turned out to be.

Yours humbly,
Ta bù shì dà yú

AdTIה"the think tank that didn't".
[ Parent ]

Thank you, Alanis Morissette. (3.00 / 4) (#40)
by lyingflamebot on Wed Aug 13, 2003 at 06:27:06 AM EST

[ Parent ]
Holy crap! (1.20 / 10) (#20)
by lyingflamebot on Wed Aug 13, 2003 at 12:17:47 AM EST

A zero from rusty himself! We're infamous!

Not that we didn't deserve the warning, of course.

You're right, rusty— we never should have put that certain fellow's email and URL in for the user info on that account you just wiped. We know he's your good buddy, and that you're quite diligent about putting out the fires that seem to constantly break out around him.

Our sincere apologies. We just couldn't resist this one time— we won't do it again.

[ Parent ]

You are wrong (1.87 / 8) (#21)
by Nomak on Wed Aug 13, 2003 at 12:32:53 AM EST

You are wrong makes joke about fleshlight. Its like oregnal I like it very much before this I use my hand for my sex needs. Now time once day when i use my hand for my sex needs its rub my skin and demange my skin so joke is not right. Please respectfuly with others so they are not angry.

[ Parent ]
Huh? (none / 0) (#30)
by Ta bu shi da yu on Wed Aug 13, 2003 at 04:04:50 AM EST

What is this, a sex joke run through the google translator?

Yours humbly,
Ta bù shì dà yú

AdTIה"the think tank that didn't".
[ Parent ]

Hey Mr 13 Comments.... (3.60 / 5) (#23)
by thelizman on Wed Aug 13, 2003 at 01:35:12 AM EST

...the article is compatible with K5 standards. You, on the other hand, are an ignorant troll who will be hidden from view as soon as I click "Rate"...aah, the powers of being a "trusted user"....

"Our language is sufficiently clumsy enough to allow us to believe foolish things." - George Orwell
[ Parent ]
Bring it, big shot. (1.20 / 10) (#24)
by lyingflamebot on Wed Aug 13, 2003 at 01:39:21 AM EST

Come on, let's see you hide it.

Oh, and do your homework, once you've finished trying.

[ Parent ]

Yeah yeah... (1.80 / 5) (#26)
by thelizman on Wed Aug 13, 2003 at 01:43:54 AM EST

...you still don't rate...

"Our language is sufficiently clumsy enough to allow us to believe foolish things." - George Orwell
[ Parent ]
Suck it, Big Shot. (1.75 / 12) (#28)
by lyingflamebot on Wed Aug 13, 2003 at 01:47:03 AM EST

[ Parent ]
Does your mommy know you're using her computer? (3.00 / 2) (#42)
by porkchop_d_clown on Wed Aug 13, 2003 at 11:44:05 AM EST

His men will follow him anywhere, but only out of morbid curiousity.

[ Parent ]
Hello RobotSlave nt (2.33 / 3) (#33)
by x10 on Wed Aug 13, 2003 at 05:05:15 AM EST

[ Parent ]

Give this man... (2.40 / 5) (#34)
by lyingflamebot on Wed Aug 13, 2003 at 05:19:03 AM EST

...a fucking MacArthur grant.

I tell you, it takes a goddamned genius to click on the "user info" link on a comment at this site, and then actually follow up on anything one might find there, doesn't it?

Astonishing detective work, Sir, and hats off to you.

Hats the fuck Off, I say.

[ Parent ]

I'd prefer a Pulitzer, but whatever nt (1.00 / 1) (#36)
by x10 on Wed Aug 13, 2003 at 05:28:24 AM EST

[ Parent ]

Sorry, no go. (2.40 / 5) (#37)
by lyingflamebot on Wed Aug 13, 2003 at 05:36:04 AM EST

Pulitzers are for merely competent workaday hacks.

MacArthurs, on the other hand, are for geniuses. Like you, sweet cheeks.

[ Parent ]

Ed Slocomb, whiny shit-stirrer? Well I never! (none / 0) (#52)
by it certainly is on Fri Aug 15, 2003 at 02:30:35 PM EST

What a brilliant exposť! Someone who runs a little ISP tells us about what he knows, obviously this is just a thinly-veiled advertising frenzy. How terribly deceptive.

Fearless public defender, philosopher and thinker Ed Slocomb has come to our defense. This article is obviously nothing but big plugs from an astroturfing shill, raking in the cash from gullible K5ers rushing out to start their own web businesses.

From the man who brought you "short sell SCO stock, you'll be rich!" and "that old man who killed a lot of people is innocent!" comes another devastating revelation -- "it's a scam, he's getting paid for this!". Obviously, his suppliers have said to him "go and do some guerilla marketing, we'll give you a cut". How awful! Thankfully RobotSlave is here to expose the charlatan and slander his piss-poor ISP offerings -- apparently, they're run by a student in his spare time!

This comment brought to you by Bloggo's Nougat Treats, they're smashingly delicious!

kur0shin.org -- it certainly is

Godwin's law [...] is impossible to violate except with an infinitely long thread that doesn't mention nazis.
[ Parent ]

Good idea, but not what I'm looking for. (4.57 / 7) (#27)
by Dinner Is Served on Wed Aug 13, 2003 at 01:46:13 AM EST

You see, I'm looking to start a Collaborative Media Foundation in my spare time (probably 1-2 hours a week). Any tips?
While I appreciate being able to defend against would-be rapists who might suddenly drop in from the sky, I don't appreciate not being able to see the Northern Lights. -- mfk
I'd recommend it (5.00 / 1) (#41)
by smileyy on Wed Aug 13, 2003 at 09:10:05 AM EST

You'll make upwards of $35,000 a year.
...alone in suicide, which is deeper than death...
[ Parent ]
How much do you make? (5.00 / 2) (#32)
by thaths on Wed Aug 13, 2003 at 04:19:10 AM EST

If you don't mind me asking...  on average, how much money do you make per month?  Is it enough to pay for rent/mortgage, food and a few essentials?


Pizza money :-) (3.66 / 3) (#39)
by Valur on Wed Aug 13, 2003 at 06:18:35 AM EST

My one year old business only yields a few hundred a month in profit to myself, for about 5-10 hours of work each month. Unless there's a crash (which is very rare), I can do this work at my convenience. In the budget of a full-time student, a few hundred dollars is a big deal. I consider it a great return on investment for the small amount of initial start-up time and money required. My approach is rather laid back, there are those who makes thousands a month by developing their business full-time, especially those who create web sites as well as host them.

Hosting for creators: RPG-Works.Net
[ Parent ]
And the $64 kilobuck question... (none / 0) (#43)
by porkchop_d_clown on Wed Aug 13, 2003 at 11:44:59 AM EST

How does that work out as an hourly rate?

His men will follow him anywhere, but only out of morbid curiousity.

[ Parent ]
Eh (3.00 / 2) (#46)
by Valur on Wed Aug 13, 2003 at 01:39:14 PM EST

Between $15 to $20 a month depending on how good business is going :)

Hosting for creators: RPG-Works.Net
[ Parent ]
Correction (3.00 / 2) (#47)
by Valur on Wed Aug 13, 2003 at 01:39:57 PM EST

Bah, that's what I get for posting after I'd just woke up. What I meant to say was that my hourly rate was between $15 and $20.

Hosting for creators: RPG-Works.Net
[ Parent ]
LoL. Thanks. (5.00 / 1) (#50)
by porkchop_d_clown on Wed Aug 13, 2003 at 09:40:37 PM EST

In my mind, figuring out the hourly rate is always the best way to determine if something is worth your time. Actually, it sounds like you're exactly right - you've figured out a great way for a student to make to extra income.

His men will follow him anywhere, but only out of morbid curiousity.

[ Parent ]
So you want to start your own web hosting company | 51 comments (39 topical, 12 editorial, 0 hidden)
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