The Internet at times can seem like a microcosm of the universe – extremely varied and continuously expanding with almost limitless possibilities. For businesses built on the Internet, such as web hosting, social networking, or content publishing enterprises, most go in with plans of dominating their market segment…only to be hit squarely by reality. That harsh reality is that while the Internet may seem like the open frontier to newcomers, it is also the great democratizer for consumers and other businesses, i.e. “your customers”. Never before has the general public been able to make buying decisions based on so much data and the end result has been that competition on the Internet is just as great – if not greater – than competition in your offline local or regional market. To compete within this framework, web hosting companies pursue a number of strategies, to varying degrees of success.
One strategy is to go down-market, which means you are going to compete strictly at the lower end of the price/functionality scale. Businesses that succeed at this typically do so by having an extremely low cost of production (due to IT automation, superior utilization of low-cost labor, or more efficient business processes). Another strategy is to go up-market, which means you will not try to compete solely on price. Instead, you will offer some unique, value-added services such as expertise in cloud computing, Oracle or Microsoft SQL Server database hosting and administration, or high-end security hardening and protection services. The range of possibilities along the price/functionality axes is extremely large but many hosting companies (particularly small startups) quickly find that virtually every angle already seems covered. In both the down-market and up-market examples mentioned above, the assumption is that the business is targeting a horizontal market segment. By “horizontal”, we mean a strategy that cuts uniformly across all markets and attempts to be all things to all people. This is more of a one-size-fits-all approach which means you would essentially be marketing your products and services to all visitors.
Another interesting approach for some hosts, however, is to target very specifically vertical markets or niches by not only advertising and marketing to companies within these niches but also offering unique products and services that perhaps only they would be interested in. For example, if you are targeted businesses in the education vertical, you may work directly with one or more software partners to become an authorized reseller and host of specialized campus or classroom management software packages. Your hosting and subsequent expertise in these packages could allow you to offer these applications as part of a packaged hosting plan. In addition, your firm could grow to offer training, consulting, and customization services around these products. In a horizontal marketing strategy, you may find yourself competing against 25,000 other businesses to gain .0001% of the overall hosting market share. In an extremely targeted vertical niche, however, you may be one of only ten companies building a hosting business specially focused on that niche. At the end of the day, the best business idea may be to specifically compete against ten competitors, rather than 25,000.