Groupon says its focus is on the bottom line, rather than top-line growth.
Choosing a web host is akin to selecting a mate, and it's risky to rush into a long-term relationship.
When he launched OverstockDeals.com in 2009, Dave Ems was happy to find a vendor, Volusion Inc., that would host his home improvement products e-commerce site as well as provide its shopping cart software and handle payment processing. Volusion outsourced web hosting to Rackspace Hosting Inc., and Ems worked through Volusion when he needed to make site changes.
But in the last year, as his business grew to more than $10 million in annual sales, the founder of OverstockDeals LLC decided he needed more from his web host. He planned to launch new e-commerce sites and add more imagery and other elements, and he wanted more reliable performance and to be able to directly update the software on his site, rather than communicating through an intermediary.
Those goals led him to relaunch his site with software from Magento, which eBay Inc. acquired last year, and to sign a web-hosting agreement directly with Rackspace, the No. 2 provider of web hosting services to Internet Retailer Top 500 merchants after GSI Commerce, also now part of eBay.
The switchover to Magento and Rackspace took 13 months and left Ems convinced of the importance for a web retailer of taking the time to find the right hosting provider.
"Finding a web host is like picking a wife," Ems says. "You don't want to make the wrong decision, because it's an expensive, daunting task to switch." He calls the hosting choice "a critical business decision, probably as important as your product mix."
Like OverstockDeals, many web retailers outsource web hosting, particularly small to mid-sized web retailers that typically lack the financial resources and technology expertise to operate their web sites themselves. While 39% of the Internet Retailer Top 500 merchants—the 500 leading North American e-retailers by online sales—that identified their web hosting provider said they did the work in-house, that falls to 11% for the Second 500, those ranked 501 to 1000.
It's a decision that's becoming more complex, as more companies offer web-hosting services and the technology evolves rapidly. That evolution includes the emergence of what is known as "cloud computing," the ability to access via the Internet computing power and data storage capacity housed in large data centers. Increasingly, web hosts have vast computing and data storage resources at their disposal through the cloud, which makes it possible for retailers to quickly add computing resources when they need to, only paying for what they use.
"The vendor landscape is highly dynamic," technology consulting firm Gartner Inc. wrote in a recent report on web hosting providers. And that means e-retailers should choose carefully. "It is difficult to predict which vendors will be good long-term bets; neither small vendors nor large ones can be considered safe," the report says. "In general, shorter-term contracts are preferable in this market; a one-year or two-year contract is best."
As e-retailers look around for web-hosting providers they'll find there are many to choose from; retailers in the Second 500 alone list several dozen providers. And there's a big range in fees: Web hosts may charge an online retailer as little as $30 a month to several thousand dollars, with services scaling up accordingly.
In the case of OverstockDeals, the e-retailer will be paying Rackspace more than it was paying Volusion, $1,500 versus $750, but getting more for its money, Ems says. That's because he would have had to pay Volusion an additional $750 monthly for each new e-commerce site he launched, whereas the direct deal with Rackspace covers any number of sites. Ems signed a one-year contract with Rackspace.
Ems also decided to pay Rackspace a one-time fee of $4,500 for a server dedicated solely to OverstockDeals' operations. He made that decision based on his previous experience of sharing a server with other companies; in some cases the other sites' problems crashed OverstockDeals.com, Ems says.
OverstockDeals may have outgrown the packaged deal approach to web hosting, but it works just fine for some small retailers. For example, T-shirt e-retailer ShirtsThatGo.com, whose web sales are under $100,000, pays around $30 most months for e-commerce software from Volusion and space on a shared server.
"I couldn't even tell you what type of server I have or what type of network it's on," says Nick Morgan, the e-retailer's founder. "I pay the monthly fee for my package, it has a back end where I process orders, and that's my store."
Even at that low price, Morgan adds, the web-hosting service can quickly add capacity to handle traffic spikes like one that followed a mention of his site in People magazine. "We had 1,000 unique visitors in one day and that's a lot for us," Morgan says. "But the site performed well. We exceeded our bandwidth allotment for that month, but my bill only went up around $30."
The bundled option also suits Clint Howitz, founder of pet tag retailer dogIDs.com, who prefers to have an outside expert tackle the technical work of server maintenance. "An I.T. person here could probably handle that stuff, but when you're small like us, you have a small team," he says. "That's one area that we'd rather not mess with because it's pretty critical."
DogIDs.com, which brought in about $1 million in web sales last year, is on a professional-level plan with Yahoo Small Business, paying around $300 per month for an e-commerce package that includes shopping cart and order management software, web hosting, marketing and promotional features, and customer support.
Service and scale
But price is not the only consideration. Many growing online retailers want to be sure they'll get good support from a web host.
Knowledgeable around-the clock customer service is one reason travel-sized product retailer Minimus LLC has stayed with web host Datapipe Inc. since the e-retailer's launch in 2004. "They have 24-7 customer support where a human answers right away, and they have super knowledgeable tech support people that can dive right in and assist on any issue," says Minimus founder Paul Shrater.