The Web Hosting Bubble

Web hosting is a new industry. Due to the invention of the internet, and subsequently domain names, thousands of businesses have sprung up to provide services to support what we now know as the internet.

The web hosting industry has been very profitable for those who succeed, yet also subject to fierce competition and a highly partisan consumer base. In this industry, reputation and word-of-mouth truly exceed the gains of the more expensive, traditional methods of advertising.

Often, all it takes is one upset customer to a create a “this web host sucks” website, that can scare away thousands of potential customers. Other times, a bad experience with customer service can lead to the irate customer creating a “thread” in a popular online forum to complain of the service. While one such occurrence may not be a game-breaker, if the trend is allowed to occur it can cause the downfall of a web hosting company. Yet, in such an industry, a few giants have emerged to grab large profits and succeed quite well.

Most of the medium to large sized web hosting companies report a staggering growth rate as well, due in part to the boom of the internet in various parts of the world, and the international nature of the internet. So while US demand may slide, the gain in demand in other countries, can easily exceed what is lost from the American consumer base.

There could be what some are calling a “plateau” within American web hosting. Once some of the premier web hosting companies establish solid reputations, with consistently excellent customer service, most customers tend to stay with the same web host.

So in the future, to avoid losing their currently rapid rate of growth, the larger web hosts will have to begin offerings in some of the larger foreign markets to stay competitive. Some companies have already done this. For example, Hostgator launched “Hostgator Brazil” with a new domain in August 2007, as they noticed a large growth in customers from South America, particularly Brazil, to help cater to that target demographic. Hostgator has seen an explosion of international customers in the past year, as they now comprise over a third of the american company’s customers. Hostgator plans to market more aggressively in Brazil in the future, and is dedicating more resources to the South American region. Expect other web hosting companies to follow suit, to expand into foreign regions. If other web hosting companies don’t make the move into foreign markets, they may lose their competitive edge on some of their more savvy counterparts.

So, in conclusion, while the American consumer demand may reach a “plateau” once they find a comfortable web hosting service, expect the thriving web hosts to have moved into foreign markets.