Understanding Dedicated Web Hosting Services
    Executive Summary–June 2000

Experts predict web-hosting revenues will quadruple over the next four years. But what are the underlying realities of this apparently hot business opportunity? Here's a study that provides answers.

by Tom McCafferty Managing Partner, ISP-Marketing LLC [August 4, 2000]

In April of 2000, ISP-Market conducted a study of Internet Service Providers (ISPs) that offer dedicated web hosting services. The study was designed to profile trends in server configurations, service packages, and pricing of dedicated hosting service offerings over the past four years. The data presented is designed to give service providers that are evaluating dedicated hosting as a business opportunity detailed information about bandwidth, server specifications, and pricing. It also provides for software and hardware vendors targeting this space a snapshot of the current and future market trends.

Market Picture
The market for Internet hosting services is exploding. Recent studies estimate that the hosting market will grow from under $2.5 billion in 2000 to nearly $20 billion by 2004. Small to medium size businesses are driving a major shift from traditional shared and collocated service offerings to managed services that will predominately be based upon dedicated servers. The new ISP-Market report Understanding Dedicated Web Hosting Services takes an in-depth look at the effects this shift is having on dedicated web hosting services.

Pricing Trends
The dedicated web hosting market has experienced a dramatic decline in pricing over the past four years. If this trend continues, average low-end dedicated hosting prices will be below $180 per month before the end of the year 2000. For example, Understanding Dedicated Web Hosting Services finds that some providers offering services that were bringing $400 per month in 1997 will be charging less than $100 per month in 2000.

Figure 1: Average Monthly Lease Price

Account Configuration
The strong decline in pricing is making infrastructure selection a critical decision for service providers offering dedicated hosting. The limited needs and price sensitivities of the companies fueling this growth were evident in the typical account configurations. The typical low-end hosting account offering includes a server with 400MHz processor or slower and 45 percent of offerings include 2GB or less of data transfer per month.

Multiple variables are involved in determining the average service offering: RAM, CPU speed, disk space, IP addresses, email addresses, operating system, and amounts of bandwidth all vary.  However, in summarizing the collective responses, approximately 85 percent of the low-end dedicated servers were configured with the following parameters—or less:

These figures represent the 90^th percentile of dedicated server offerings, meaning that most respondents indicated their offerings were less than this.

Conclusion
The survey results clearly show a sharp and continuous drop in monthly pricing for dedicated hosting services, and that during this pricing decline there have been limited changes in server and account configurations. The report Understanding Dedicated Web Hosting Services contains specific findings showing that the migration of small-to-medium businesses to dedicated hosting services will likely continue to drive monthly hosting prices down.

—End Executive Summary

To purchase the complete report,
visit: http://www.isp-market.com/reports/hosting.htm