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.
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.