Buying and selling NZ Web Hosting Businesses

We regularly get contacted by small New Zealand web hosting businesses, looking to sell their web hosting business and client base to us. Unfortunately many web hosts that do contact us, do not have sustainable long term business models, and don’t really make any money.

Many of these unsustainable web hosting businesses are setup by a single person, and are setup to be run as a single one person business. These web hosting businesses are often setup by leasing a cheap reseller plan from another web hosting provider, and then creating web hosting plans that undercut the competition on price alone. However over time these hosting plans become less attractive, as new web hosting entrants enter the market, which in-turn also undercut on price. So overtime people stop signing up to them, meaning the business slowly dies from normal ‘churn’, and their existing customers decide they no longer need their website anymore.

Another way these web hosting companies can lose customers, is by providing poor quality support, and poor quality hosting. All web hosting is different, and much of the reseller hosting that you can buy is pretty poor quality, and can slowdown over time, as the webhost loads more and more accounts onto the server. This can result in lots of downtime and other technical issues. No one wants to host their website on that. In general the less the hosting costs, the more hosting accounts will be crammed onto the server, and it is often a case of ‘you get what you pay for’.

The other major problem with these companies that undercut on price, is that they end up with a relatively large number of customers which they must provide customer support to. However, the amount of revenue they get, may not be enough to provide top quality knowledgeable support for those customers. So they may end up either subcontracting out support, often using overseas customer contact centres, or they may hire low wage non technical staff. Both of these solutions are less than ideal and often creates frustration for the customer, reducing the web hosting companies value.

As a result, these types of low cost web hosting companies, are not the types of web hosting business that we are interested in buying. We usually find that these type of web hosting business last for a few years, and close down, rather than get brought out by a larger company. Many start up web hosts solely setup their business to rapidly increase their customer base, rather than to actually make an initial profit, so they can onsell the customer database at a later date. So all any money they do make, goes back into growing the customer base. This is often done by pricing their services so cheaply, and undercutting the competition, so the service is essentially subsidised. So the company buying the web hosting business, has to make sure that the business is actually sustainable and can make money. If not, they will have no choice but to raise the pricing to compensate. This is why you often see web hosts who start off with some of the cheapest pricing, having to raise their pricing, which then usually brings their pricing in line with other web hosting providers.

We have unfortunately seen many web hosting providers who have sold their businesses, to other web hosting  companies, who weren’t up to the job. This meant that after the sale, the support and server reliability dropped, resulting in people shifting their web hosting elsewhere. We have been a victim of this ourselves, so imagine it happens a fair bit.

What we look for when buying a hosting business, is a business that has proven itself as providing premium customer service, and rock solid hosting reliability. We look for a host that has a good range of clients, and not just individuals who are buying hosting on price alone. The best clients are NZ businesses who demand top reliability and good quality NZ based support.

So if you are a NZ web hosting provider with a good quality business, and are thinking of selling your business, please contact us.

Tags: , , , , , ,