Shared Hosting Gurus Worried About High Business Costs
July 21, 2006
I’ve seen in todays Netcraft’s news that web hosting professionals who attended at HostingCon 2006 agreed that web hosts were paying more money to get visitors to their websites. Conference’s panelists said that the increased affiliate commissions, fees and higher costs of Google Adwords advertising were reducing the profits of web host.
The other “growing problem” for web hosts, according to host gurus is a “click fraud”.
Lou Honick, CEO of HostMySite said that “If you’re going through traditional channels, it’s getting more and more expensive to acquire a customer. The cost of acquiring a customer is skyrocketing.”
It’s true, but at the same time Shared hosting providers made all the stupid moves they could to make hard times come easy for them! i don’t even mean the overselling and cheating customers with the disc space and monthly transfer quotas.
Affiliate Programs - Who Cheats!
Let’s start with the affiliate programs! There are hundreds of web hosts, some of them well-known in the industry, that claim to provide affiliate commissions between $55 and $85 per sale! At the same time their hosting plans are priced around $90 per year. The only way to run a successful business while claiming you’re paying such commissions is … not to pay them.
Some companies just modify their in-house affiliate commission stats and reduce the number of the real sales made by affiliates! Others put hidden Terms of Service that say they pay only if there is no “Money Back Guarantee Issued”. Some adjust the affiliate commissions and pay with 60 days delay or even more!
HostingCon 2006 participants said that there are at least 6 hosts that offering between $100 and $120 per referral in Commission Junction. Matt Heaton, a CEO of the popular shared hosting provider BlueHost said his company generates most of its leads through affiliate programs. He has also said taht the affiliate rates “represent a significant increase”.
“At the time we started using them, we struggled to pay $75 for a customer,” said also Matt Heaton.
To finish with this issue I would like to say Matt, whom I know form our e-mail correspondence, is right but the web hosts are fully responsible for the increased costs of the affiliate commissions they have to pay! Affiliate networks and hosting industry media just use every opportunity they have to adjust their pricing. And they always have a good reason to do so!
My suggestion to both hosting providers and to affiliates is to establish a fair commission rate. It has to be less than 25% of the total cost, a hosting customer pays for the service! That means a web host that sells shared service for $7.95/month on annual contract may not provide commission per sale higher than $23.85. Well, let’s say $25. This is the reasonable price that everyone would agree to pay to their affiliates to get a new customer. 25 per cent rate allows both web hosts to sale and publishers to make money.
The point however is that web hosts prefer to use affiliate programs because they save them money on advertising. Affiliate commissions don’t calculate the advertising costs. They outsource them to publishers who become responsible for the sale. Very convinient. Isn’t it?
Media Mumble
The other guys who complain about decreased profits are the old-fashioned web hosting media! Chad Randall, the Sales Director at TopHosts.com, said the practices of building “top 10 sites” encourage competition for the best payout. He said that many so called “top 10″ became affiliate farms.
Another guy who fights for profit. He however missed to say that so-called “top 10 sites” came to reality because the market grew and web hosts were not able to pay the increased prices of advertising, the hosting directories asked.
Pay-Per-Click Fraud
A week ago DawHB.com blog reported about increased CPC costs of Google Adwords. One of the popular Press Release agencies, PRweb, even refused to publish the story because they found it “harmful” for Google.
I like Google, but the thing I don’t appreciate with them at all, is that they use their leading position on the market to squeeze more and more money without delivering better quality. They now put themselves in position to say which web site is quality one and which one is not! Google revolutionized the web but then started acting much as a web government by saying what users should do!
The Search engine however can not be blamed that shared web hosts became too greedy. Adwords cost-per-click model allows web hosts to control their bids and to pay as much as they want to. If they constantly increase their bids they will pay more!
What to Say?
Reading the news from HostingCon 2006 makes me to have poor expectations about the Shared hosting market. The big grumble about others who make the big money have obviously become the main keynote of the conference. You may see thing different if you read HostingCon’s website. Those who were there might feel good about the event. But what an average website siteowner will say when they read the news.
Is it true that those who complain most are most to be complained of?
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