Hosting Theory

Data Centers and Your Hosting Business

The data center is the most important tool in a web host’s arsenal.
That might sound painfully obvious, and it is, but for those looking to get into this industry it’s an important item to remember. Competitors brag about which bits of software they use to push product out the door but they often forget to mention the necessity of maintaining a powerful, scaleable, stay-in-business-able data center to actually store that information.

After our most recent expansion into ServInt LA, I thought I’d share a few insights into the choices we had to make when building our infrastructure to give folks a better understanding of our corporate goals as well as offer advice to those looking to get into the hosting biz.

Here goes.

Buy and Build vs Lease and Leverage

For companies looking to host their own servers, you really only have two choices. You can lease space in a data center “hotel”, or you can build your own data center. Each has it’s advantages and disadvantages which I’ll try to outline in as few words as possible.

The advantage in leasing is fairly obvious. You have existing access to fiber, cooling, plentiful power, security, and you can still retain the privacy you’d need to ensure your customers’ data is secure. Leasing space is a terrific way to run a shared or VPS hosting company as you don’t need to worry as much about the physical aspect of your servers…the hotel is responsible for making sure the walls around them stay up and they have an extremely vested interest in keeping it that way.

The downsides, however, are pretty apparent if you’re successful. The question of space is a serious concern, and sharing a facility with other companies can be a headache if you need more space and business is booming. Being artificially hampered by physical constraints is annoying, but when it directly affects your bottom line, it can go from zero to deadly very quickly.

On the other hand, the choice to build your own data center mitigates a lot of these concerns. Assuming a host has the capital, space isn’t really an issue in most cases. Data centers can be built and customized to better fit the culture of the organization or to help them deploy a unique product line. The downsides, however, are also obvious. Cooling, electricity, security, these are all entirely your responsibility now. In many cases, the cheap lots off the beaten path that would seemingly make for excellent data centers also happen to live far away from fiber hubs, so building powerful lines to a new location becomes yet another investment to consider.

I don’t mean to scare potential startups from diving into the world of hosting. I’m just pointing out the importance of understanding exactly what challenges and opportunities any new company will be facing should they decide to become a provider. ServInt faced these exact same challenges when it started in 1995, only there was barely any infrastructure to speak of and all we had then were two employees and some office space in Virginia.

ServInt uses a combination of owned data centers and leased space. Leasing space makes it relatively easy for us to grow and allows us to monetize investments in a new location quickly. That monetization allows us to build bigger, better, and more efficient data centers down the line, which in turn helps us experiment and invest in research and development.

Where Do I Start? Leverage What You Have!

When Reed started ServInt in 1995, he knew he wanted to build a strong, competitive, independent company; not just another flash-in-the-pan host looking for acquisition. He had the exact same options as those outlined above and he made some pretty bold choices over time, choices that would help shape the character and trajectory of ServInt for years to come.

He decided to lease office space and build his first data center from scratch in the same building as the ISP who would be supplying the company’s internet connection. This was crucial because at the time, high speed lines were extraordinarily expensive and laying fiber over long distances was even more so, certainly much pricier than the budget of a 19-year-old entrepreneur. By building the company in the same building as an ISP, Reed first laid the groundwork of what has become a core tenet of our data center philosophy.

Build where the traffic is.

In contrast with the vast majority of our competitors at the time who were paying through the nose for the exact same connection, we were paying FAR less by simply being in the same building. This exact scenario probably isn’t possible today, but the idea is still applicable. Reed saw an innovative way to run a hosting company by maneuvering his way to lower costs and it worked. It allowed ServInt to invest in growth while its competitors were busy trying to stay above water.

The Third Way: Resell

There is a third way for budding entrepreneurs, and it’s probably the most rapidly expanding segment of our industry today that never existed when we started. Reselling has exploded in popularity in recent years, primarily due to the influx of entrepreneurs in the blogging world looking for something more robust than a account but who need a bit more handholding than traditional hosting solutions offer. Tech savvy individuals can resell hosting services with a value add, say 3rd party software support or consulting services, and combine the stability of a larger host’s products with their own expertise, charging a bit more on top and making a healthy profit as well.

ServInt has its own reseller program and it has exploded in recent years. We’re incredibly proud to host so many incredible web hosts ourselves and this new market segment has proven to be a true win-win for everyone involved.

Don’t let the concept fool you into thinking you can’t grow, either. One of the largest and most successful hosts in the world, Host Gator, are actually resellers themselves. While they aren’t customers of ours, they are a terrific example of what a good business can accomplish with the resources at their disposal. There are success stories nearly everywhere in our space.

But, above all else, the one trait that has helped us be as successful as we are is our willingness to accept failure alongside success. We have been at this for nearly 15 years now, an eternity in our industry, and we are and have been at the technological forefront of a lot of the game changing innovations in the hosting industry.

If you can accurately define success yourself, it becomes much harder to fail. Now break a leg.

Photo by Tom Raftery

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