Evolution of the Web Hosting Industry - The First Stage: Introduction

In this stage, many if not most people aren’t yet fully aware of the industry or what it has to offer; consequently, industry players need to not only sell their wares, but teach people about them. (Contrast this with the gasoline industry). There is a certain amount of chaos at this stage because no standards have yet been set, and/or they change frequently. Since the industry is just getting started, not many people are in it yet, which makes this an excellent time for industry players to increase their market share since they have so few rivals.

As you would expect from the lack of competition, prices are high. Another factor keeping prices up is high expenses; it is costly to invest in a new business, even more so when you can’t simply get what you need “off the shelf” (this holds true for both human skills and physical equipment). When a company doing business in an industry in this stage of development needs an infusion of cash, it will look to venture capitalists, angel investors, and Wall Street. Banks, which are basically conservative, will usually not want to get involved.

The risks to any new business in an industry in this stage are high, but so are the rewards. If you have come along with the right product or service at the right time, you could receive a major pay-off. The web hosting industry’s introductory phase coincided with the early days of the World Wide Web (about 1995). Thus, it was driven to some degree by the dot-com boom.

Web hosting companies and dot-com firms drew to some degree from the same talent pool. If you were a system administrator, you might prefer working for a web hosting company, taking care of hundreds of sites (usually with help), rather than working for a dot-com and being responsible 24 x 7 for just one site, all by yourself. Without the resources to handle their own web hosting, many dot-coms had to outsource the hosting of their websites. Often, the same ISPs that provided Internet access to dot-coms were the first ones to enter the web hosting business, and they had large infrastructure costs to recoup. But the industry was poised to change.

Next: The Second Stage: Growth >>
 

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