Thread: Dedicated vs Colocation for a tiny web host

Again, thank you so much for all of the replies - your thoughts are really helpful. And, again, sorry it's taken me so long to return to this thread...

So, to respond:

Originally Posted by JamieBeeston

It's not for anyone here to tell you how best to run your own business, we can only make suggestions based on our experiences, however I'm intrigued, how is buying a machine, paying to colocate it, then charging more to rent it to your customer any different to the above?

With co-location, whether we outsource our sys admin or not, we should be able to provide dedicated servers at competitive prices. We could charge the same price as our co-location host does for renting dedicated servers and still be making a profit (in the long term). Our revenue would easily exceed our running costs without us having to charge higher prices than our host company.

If we rented a dedicated machine and then, in turn, rented it out to a client, we'd have to charge a higher price than our co-location hosts do themselves for renting out servers. Our prices can't be that much higher because then they would be noncompetitive and, obviously, any running profit we make will have to include our support staffing costs. In addition - the client could just go straight to our co-location host, rent a server from them at a lower price, and expect the same level of support. In this instance, our prices are uncompetitive and our profit margin is small.

Originally Posted by JamieBeeston

Another option may simply be to ask the host for a reseller commission, whereby you do hand the customer over, or even charge the customer the same, or even less than the hosts own list price, but where you garner some discount from the host for volume sales.

This is looking like a more appropriate solution all the time, and is pretty much what the Tagadab reseller scheme offers. We'll need to find somewhere with much bigger discounts to make this worthwhile though.

Originally Posted by burble

Like Jamie says, that's down to your business practices.

With regards to web development - we pride ourselves on being honest, open and knowledgeable. We always provide our clients with the same advice we would give friends, and even ourselves. We don't want this to change if/when we enter the web hosting business. So this means nothing shady everything we sell needs to offer good value and encourage loyalty - I guess if we don't add value, we don't add to the price... or we don't sell it.

Originally Posted by burble

I think I'd misunderstood - I assumed that this was part of your web development business, ie. you'd be adding on-going value to the service; creating a site for them, setting it up on a rented dedicated server which you then manage for them and offer support for. That wouldn't seem at all dishonest.

However, re-reading your posts it seems you're planning to get into dedicated hosting, and will literally just be handing out the keys to a server? In that case, I guess it would depend on how you plan to offer support; if you plan to sort problems out yourself, then it's absolutely acceptable for you to charge a monthly premium to manage it, or to resell a rented machine at cost and charge for hourly support.

I may be wrong, but it seems to me that the margins involved in hosting these days are so tight that unless your business model will make a good profit reselling someone else's rented server, it's not going to be worth the effort of renting out your own dedicated co-located machines either.

Primarily, at least for the first year or so, we only really want to offer dedicated hosting to web development customers who already pay us a monthly fee for support, etc. Here, will easily be able to integrate our hosting fees.

However, people often come to us just for hosting and we are/were interested in seeing how far we could take this. If we really can't find a business model which provides us with a reasonable profit margin here, we will just limit our hosting services to some form of "managed" hosting for web development clients only - but we will still seek the largest margin from the hosting service provision itself.

We would be providing support ourselves. We could justify charging for the support we provide, but it's pointless if our host would always be able to provide the same level of service at a lower price - we'd rather just direct them there.

Originally Posted by PeteK

Originally Posted by starsocks

The logic of it all does seem slightly counter-intuitive, at least from the host's point of view. I do just want the same deal as if we were renting a server, but where we own it - really just for the advantage of being able to rent out our own dedicated machines.

In which case, if you can secure a lease deal with Dell/HP then do exactly that. I can (vaguely) see the advantage to leasing it yourself, but to be honest at the prices some of the hosts get, plus the fact they will have a spares/exchange relationship with the supplier, I think a leased box might just be more appropriate.

If we can find a stable, fast, and really low-cost host with great 24/7 support - then we will just rent the boxes. But it will need to be pretty low-cost, we'll quickly want 2 or 3 and hopefully 10 within a year or so.

Originally Posted by PeteK

Originally Posted by starsocks

We don't have to buy the server off the host, it would just be easier that way (in terms of getting it to the DC and future maintenance). We can purchase the servers ourselves, direct from Dell or wherever, and then courier/bring them to the DC - that's not a problem.

We have lots of boxes that arrived in the latter format, then KVMoIP or DRAC/ILO card later and you have it built, probably having never seen it.

Ah, so this is a possibility...

Originally Posted by PeteK

Originally Posted by starsocks

The only reason I mentioned buying the server off the host in the first place was because I saw that host-it.co.uk offer such a service.

Didn't know they did and don't really see the point unless your host is offering a volume deal, or you want something (perhaps older) that they have on the shelf.

Just to save on delivery charges? Also if a host had something lying around or something they could put together for me, I'd be open to offers. We don't always need the latest and greatest and would, of course, listen to any possible cost-cutting measures (within reason).

Originally Posted by PeteK

Originally Posted by starsocks

I was hoping to find a slightly smaller, friendly host with their own datacentre who could do something like what we're looking for. Initial budget isn't really an issue, but we obviously don't want to waste money.

Perhaps you just have, only thing is they are 200 miles from where you want them

I knew I could Leeds is obviously a useful location for our Leeds-based clients though.

So... would a company like yours be able to: advise on the 1st machine to buy; accept delivery of it; set it up, plug it in, install some things, etc; and also be on hand 24/7 if anything went wrong hardware-wise, as well as to support us software-wise?

What sort of prices would I be looking at for this kind of service in Leeds - per machine (if appropriate)? And how much (roughly, obviously) would that increase by if I was to find it in London?

Originally Posted by PeteK

Originally Posted by starsocks

That's an interesting statement. With colo costs adding up, perhaps it would be better to go with a rented machine. What do we do when someone wants their own dedicated machine though?

Rent it white label, or brand it as your own and sell it on. Again ourselves no doubt like many other on here have a good number of customers who do exactly that - in fact only today we had one of the better known exhibition centres call us up after their webdev had done a whois on the IP of the server to locate their host, as they had forgotten. Odd thing is its our IP, our firewall, our mail services, our server, rented to a customer of ours who is selling hosting to said site... I always find these quite amusing, and often muse how much more he is selling that space for, or even if they know they are sharing a not particularly over specified server with lord knows how many others - none the less its not our place to say and we politely referred the lady to said company!

Exactly, this is the kind of situation we want to avoid. We don't mind the possibility of one of our hosting clients ringing our host up, but not if they offer exactly the same service as us at a lower price. I understand we're a small outfit and don't mind renting servers, but only if we can then pass them on to our clients at competitive prices.

Originally Posted by PeteK

Originally Posted by starsocks

We've also been looking at Tagadab's reseller control panel recently, which could possibly provide a third way.

If you need a control panel for your customers, IMO get your own server and install it, or lease it with the server - being a reseller of a reseller of a.... No No NO!

Are Tagadab a reseller? They offer a "fully-automated dedicated server resale facility" (Resellers | Tagadab.com) which is basically a control panel which allows you commission and decommission dedicated servers, installing whatever you want, as well as set up VPS' and provision other extras, etc. - all automatically. I don't actually rent anything from them currently, but did go for the free trial and now have access to the control panel since it's free. The prices you get are the same as they offer on their website, but you do get a 5% discount sooner or later. It could be useful, not least because of the ease-of-use and minimal initial costs - but I won't do it if they, themselves, are a reseller.

To be honest though, this still presents the same problem. The 5% discount would hardly cover the support costs we would incur, although outsourcing this doesn't seem to be as expensive as I thought it would be. I'm not sure if Tagadab offer 24/7 support, too.

Best,
Tom

Originally Posted by FH - Tim

Also it's quite unlikely even with colo (any kind) that you could compete with the prices of RS and alike, they have all the benefits of economies of scale.

If your not adding value then just take a commission for referring.

Can second that. The only reason that people like UK2, Pound Host and RS can get low prices to their customers on a large scale is their buying power. If you are buying bulk, or a lot of products from a supplier, then you can get that buying power and get hardware as cheap as possible. Try and go direct to the suppliers and not providers like eBuyer that add their markup on top.

Thanks for the replies!

Originally Posted by FH - Tim

Also it's quite unlikely even with colo (any kind) that you could compete with the prices of RS and alike, they have all the benefits of economies of scale.

Originally Posted by HostGathering

Can second that. The only reason that people like UK2, Pound Host and RS can get low prices to their customers on a large scale is their buying power. If you are buying bulk, or a lot of products from a supplier, then you can get that buying power and get hardware as cheap as possible.

I understand we won't be able to offer the most competitive prices in the business. When I was looking at co-location options, I looked at smaller companies who could offer me a more personal service (for reasons outlined above), then I looked at their dedicated server charges also - which are more expensive than RapidSwitch, etc. These are the companies I would like to be able to compete with. I know we won't be able to compete on price with the likes of Poundhost and RS, but I want to be able to offer a (reasonably) basic dedicated option for, at most, £60+ or £75+ pcm.

Originally Posted by dazmanultra

Not necessarily. Remember to factor in the up-front cost of purchasing the equipment, or the ongoing added cost of a lease. Co-location tends to become better value for money when you have either a lot of equipment, or you require specialist or very high end equipment. At the low end, it's probably better to get a cheap dedi from the likes of Poundhost or Rapidswitch.

This is it - I don't require specialist or really high-end equipment, but how much is a lot? The reason I was so inclined to go with co-location in the first place is because long-term, and in terms of scale, the savings should really kick in right? Looking 3 - 5 years down the line - with around 15 to 20 machines, co-location looks the better option in terms of cost, surely? Or would the extra support requirements I have and the upgrade/maintenance costs squeeze the difference to a negligible amount?

One of the main things that struck me about renting a dedicated is that if I want more RAM or HD space I have to pay extra for it on a monthly basis. If we keep the machines for a long time, we'll end up paying way more than the actual cost of the upgrade.

This is where Poundhost come into their own though it seems - I hadn't taken a good look at their price list before now. I love the fact that you can get extra RAM or HDDs for a one time fee. Their prices are really good - for both renting the servers and the additional items. Looking at Poundhost, I can start to see a decent business model based around renting machines.

Originally Posted by othellotech

if you're not adding any *value* to the service - i.e. you really are just renting them in and renting them out, then simply dont bother.

if you are adding value/service/whatever for your clients, then just doing a price comparison to your provider is irrelevant.

For our web development clients, we keep watch and look after their site for an agreed fee on a monthly basis. But that fee is for that service only. If we are also their web host, we charge a hosting fee in addition. Even if we do limit our hosting offerings to web development clients, we'd still like the web hosting charge to remain competitive.

In a sense we will add value to all hosting provision in the sense that our support will be more personal - we'll usually know exactly what the client wants/needs and will go above and beyond to achieve it. Plus we also give advice to all of our client, free of charge. Existing clients only come to us for VDS/dedicated hosting in the first place because they are comfortable with our service and happy with the level of support. Since we don't currently offer this type of hosting, we obviously don't advertise it.

Originally Posted by FH - Tim

If your not adding value then just take a commission for referring.

I can't really see how this would work in practice though. We have existing/past clients coming to us wanting to rent dedicated machines - if we have them available. If I just provide them with an affiliate link I'm afraid that the customer may check out the company without using the link; or not use the link at all; and it will look unprofessional. If there is some sort of obvious referral link/code/etc. involved I'd rather not do it at all.

This could work if, when people came to us for hosting, we were able to tell them that it was being handled by our partner, take down their requirements and let them know that a representative from the partner would contact them shortly. If we could work out the price and even take payment ourselves though, that would be even better. In an automated form this I guess this would be kind of like a Heart Internet or GoDaddy reseller scheme though - something I don't really want to do.

The Tagadab reseller control panel does have an API we can use, but we'd have to put something together ourselves. Their prices start at £59pcm and offer a 5% discount so it could be an option.

In all these cases though, we'd be providing the first tier of support for relatively little gain. Another option would be to actually find a "partner" company, but surely no one would be interested when dealing with such low quantities.

...

So, I think I'm going to do some sums and see how Poundhost might be able to help us. I'm also going to make a few enquiries amongst smaller hosts, perhaps with their own datacentre - so I can get a proper idea of the costs associated with co-location.

Best,
Tom