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Is Your Hosting Company Gouging You?

Added by Kevin B on Fri, Jan 16, 2009, 11:01 PM

What is a hosting company anyway?

If you think about your website and compare it to your off-line business, you would understand easily. Do you rent or own your business location?

Let's say you rent your off-line business location. You pay rent to your landlord each month, aren't you? Now, let's visualize your website as your business. Imagine and think about this for a moment: Your website sits on a remote computer in a secure location. The data related to your website can be called

your on-line or virtual real estate.

The data requires space on the hard drive of that remote computer (we call that computer the server and we call the space that is used for storing the data of your website the server space). It costs money to the hosting company to run that remote computer and they want to recover that cost plus they want to make a profit as they are a business just like you. Therefore,

they charge a fee for the server space.

They also have to maintain a communication system infrastructure (it is usually some state-of-the-art fiber optic cable system) that allows them to transfer data in and out from the remote computer between your website and the rest of the world. Now this system usually costs even more for them than providing server space. Therefore they usually charge money for the amount of data that goes through the system between your website and the rest of the world. You can imagine that cable system as being a toll road in the real world. Each time you run errands on behalf of your business and you want to get things done quickly, there is a chance you would have to take a toll road and pay some toll, right? That is exactly how it works in the virtual world.

The toll road is the the fiber optic cable

that is between the remote computer that has your website (or hosts your website) and the toll is the fee for the data that the hosting company collects each month for a certain amount of data as the bandwidth fee. You can think of the monthly bandwidth fee as if you used an I-Pass on the toll road. The more you travel, the more money is taken out of your I-Pass account. The more data you use (or the more visitors you have), the more bandwidth fee you would have to pay. However, normally

the hosting company bundles

the rent that it collects for hosting your website and the band-width fee (toll-road fee) that it collects for the data (the bandwidth) that you use each month as one flat fee. So they are actually gouging you most of the time as you normally pay much more for your bandwidth as you should because they set their flat fees much higher than your actual usage would require (based the number of visitors you have).

Regardless, most of the time you would have to pay that combined fee each month as you would pay the rent to your landlord in the real world.

Sometimes the hosting company would let you pay its hosting fees in advance as one payment for a year so they do not incur multiple fees from their credit card companies and sometimes they pass these savings to you in form of a lower yearly hosting fee.

It is important for you to be aware a difference between the flat hosting fee and the domain registration fee.

The hosting fee as it was just explained before is the rent that your landlord (the hosting company) collects. It can be collected monthly, quarterly or yearly whichever way it is more convenient for you.

The domain registration fee is for your on-line business name

or sign (as you have your business sign on your off-line store). Once you installed that sign on your off-line store, you had to pay the sign maker and most likely get a permit for it and pay for that as well. It works very similarly in the virtual/on-line world. Your domain name is your business name or business sign on the Internet.

First, you have to find out whether it is available or not. There is a certain way to do that and most likely your hosting company will provide a way for you to check if your desired domain name is available or not.

There is a corporation called ICANN that maintains a database for every single domain name that is registered on the Internet. Maintaining this database costs money, therefore they charge a registration fee if you want to put your on-line business name or sign into that database.

Companies (the so-called registrar companies) on behalf of ICANN collect the registration fees on an annual basis. Most registrar companies allow you to register your domain name (business sign on the Internet) for increments of certain number of years.

The shortest increment (registration period) is one year, but you can register a name for as long as 100 years. After the registration period and a short grace period the name will be available for the public again if the registrant (the company who registers the domain name - in this example: your business) fails to pay the registration fee, in other words, fails to renew.

Domain names can be traded

and there are companies specializing in registering domain names in bulk and releasing them one buy one, usually charging a fairly high price for the best ones.

You may also want to know that some hosting companies throw in a free domain name for you for the first year to lure you in to their hosting service, then charge you top dollar for the following years.

Registering a domain name

through a specialized registrar company (without purchasing any hosting) is fairly inexpensive (normally around $10 per year) and a good hosting company will always disclose the amount of money they want to charge for the domain name after the first year or at renewal time. We highly recommend using an independent specialized domain registration company to avoid your hosting company's possible gouging.

We explained in the paragraph above in another way to make sure we are on the same page. We just mentioned that it is important to note that a lot of times hosting companies actually offer you to register your domain name with them. This means that

they are actually playing two different roles

(or as the industry jargon would say: wearing two different hats) at the same time. They play the role of the landlord who charges money as a rent (hosting fee) that you have to pay for your virtual real estate (your website) and they also play a role of the sign making company that charges for making your sign (your domain name) and getting the required permits for it. They even bundle a free domain name for the first year for you into their hosting price to get you in the door.

A lot of times they do not explain the difference

very well between their fees and do not point out clearly what their service fees are for. Did you ever feel being confused after speaking to them?

Some bigger hosting companies want to become the one-stop-shop for small businesses to satisfy their on-line presence needs. Besides hosting and domain name registration, they give you other services such as a 'free' WYSYWIG (What You See Is What You Get) editor in which you can put your own website together.

They even give you some marketing help

 and some ad submission credit ('free' money that you can use to start your on-line pay per click advertising campaign). These sound all great and they are very legitimate tools to get you started if you have the time to do these tasks by yourself.

However,

 keep in mind that doing these tasks in high quality is usually very time consuming and they take time away from running your business. Moreover, we have to note, that the hosting companies' specialty (what they are really good at) is hosting and maybe domain name registration. They just simply do not have the capacity to provide the necessary services (such as professional web site maintenance, and marketing service along with professional copywriting) in very high quality. A company who wants to provide these services in very high quality, must have a full time staff of experts on board who assist you and work with you every step of the way.

How many times did your hosting company call you

lately to get more relevant information from you about your planned web presence? How many times did they follow up and discussed the progress of the development of your on-line presence? How many times did they provide you with an easy to read, comprehensive progress report? Well, we cannot blame the hosting companies if they lacked any of these crucial communication segments with you because this is not their specialty.

By the same token, the exact same questions above can and should be asked about your current web design or Internet marketing company. Did any of them ever follow up after they took your hard earned money?

Sometimes hosting companies try to lure you

into a deal by giving you the possibility to set up thousands of e-mail addresses for your company all included in their hosting package for free of extra charge. This is pretty obvious, as the hosting companies want to up-sell their packages so they would even say that they throw all those many e-mail addresses for you for free if you order their services, switch to them or you are already with them, but want to sell you an upgrade.

One thing you can be certain about:

they will not give you those e-mail addresses for free. It costs them money to run an extra mail server just for that purpose. They will get their money from you in another way: most likely they charge a higher hosting fee that they should.

Now you always want to ask yourself:

are you going to use that many e-mail addresses in the first place? It is well worth having the capability of setting up several hundred e-mail addresses if you run a big company with multiple locations. However, when you have a smaller business, most likely you would not need that many. So the extra money they charge will be a waste because you are basically would be paying for something that you never use.

Have you ever gotten into a situation when big corporations charged you for certain products or services that you never needed?

 How did you feel about that? Unfortunately, many hosting companies like bundling products and somewhat overcharge their customers. There are a few really good ones though who we can certainly recommend though.

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