Will Energy Prices Effect Web Hosting?
There has been an enormous amount of business press devoted to energy and energy-related businesses in the past few months. As oil prices and gas have risen, businesses that depend on these commodities have suffered as well. For example, the automobile manufacturing industry has been hurt dramatically as consumers either shift into gas sipping cars – or simply opt out of buying a new car altogether. Likewise, the airline industry has seen its profits evaporate as fuel costs eat away at the already slim operating margins of the major carriers. One notable exception is Southwest – which has held operating costs low and cleverly hedged against volatile energy swings.
So what – if any – impact will higher energy costs have on the web hosting industry? At first glance this question may seem mute. Web hosting doesn’t appear to be an oil or gas intensive industry. However, a closer look at the operating costs of any large web hosting operation will reveal that there is a significant operating expense in all large data centers that is energy dependent – electricity usage both for running the computers in the data center, and also for the cooling and air flow within the data center.
Using research statistics provided by the United States Energy Information Administration, I checked on what electricity cost in 2000 versus 2006. Of course we all know that energy prices have risen even more dramatically recently. It turns out that in the year 2000, electricity cost commercial operators an average of 7.43 cents per kilowatt hour. In 2006 that price had risen to 9.46 cents per kilowatt hour. That cost represents an increase of 27%. When you also consider that the price of fuel for backup generators and any driving trips between data centers has easily increased by over 30% over the past year, and also that employees probably want and need pay increases to keep up with fuel costs of commutes to work – then it is clear that prices to end users must increase at some point.
There have been price increases here and there in the web hosting industry, but rising prices for overhead have been tempered by increased competition. Therefore, consumers have not seen an increase in the overall cost of web hosting. The other considerations at work are the differences in energy usage between dedicated server offerings, VPS hosting, and shared operators. If energy costs continue their upward march, it is just a matter of time until most or all of the major web hosts bring prices up to accommodate the increased operating costs.
Tags: electricity, energy, raising prices, shared web hosting, VPS hosting, web hosting
Comment by admin — August 27, 2008 @ 10:45 am
We’ve seen several companies running on low margins already increase their pricing. Not because they wanted to, but because they risked going out of business altogether. In an industry where the product is a commodity, you would have to assume those selling at too low a price would have to yield and increase rates.
Comment by John C. Young — November 22, 2008 @ 1:17 am
We had our colocation costs raised by 15% in the past month – it’s not a cost that’s going to break the bank (hardware costs are still are largest expense), but it is a cost that is going up while the economy brings itself back to it’s feet.
As a host that most would consider “value-oriented” – I think we’re actually in a spot to grow during the “downtime” that our economy experiences, just like any other. With the focus of many companies being to lower costs, it gives us an opportunity to get in the door a lot easier – I wouldn’t say a down economy is an asset to us, but I don’t think it’s harmful if you play your cards right.
Just one host’s opinion.
John C. Young
Managing Director
Internet Gateway of South Beach
http://www.igsobe.com