When does overselling become overselling?

Artashes

Artashes

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Staff member
Famous TERABYTEs-for-$5-like offers aside, when does overselling become overselling? I have just seen yet another hosting company offering xxx GB bandwidth for $4.99/mo.

We often talk about "fixed" expenses, such as "the lowest price paid for 1 GB of bandwidth is N dollars". But including fixed and variable expenses in the cost of running your business, when do you reach the overselling point? In other words, what is your breakeven price per GB of traffic?

Best,
 
Art, good question. I think in some cases, big/large companies buy several dedicated servers from a datacenter. Then the datacenter probably gives them a "buying in bulk" discount which in turn ables them to lower their price, and space essentially, for their shared hosting accounts. As for a specific number, I'm not sure, but it probably would vary on a case-to-case basis.
 
Almost impossible to say with any accuracy Art.
Fixed costs can vary wildly from one host to the next.
If you are a one man show operating from the basement and using bargain basement bandwidth and hardware, then your costs will be extremely low and you could afford to charge much less for bandwidth.

If on the other hand, you offer premium bandwidth on a top end server and you maintain a support staff then obviously your fixed costs will be much higher.

I don't really have a problem, as such, with the overselling part, but I do have a problem with false service claims and guarantees that cannot be supported based on the overselling price structure.
 
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There has got to be a reason behind offers like "5 GB space, 1.4 TB bandwidth, $7.5/mo" from big hosting brands. They have people calculating costs and reaching pricing decisions - I doubt many would put their company in jeopardy that way. Could it be that they have built such a huge server farm that they are selling pretty much their overhead of resources left from all those tens of thousands of clients who do not use up their allocated resources?

Does it make sense at all? :eek:
 
Actually Art, those "offers" pretty much fall into the sleazy and dishonest category.
Even the "big" guys build so many restrictions into their TOS that they know there is no possible way anyone could use the offered resources without breaking one of their terms.
In my opinion it's false advertising or at the very least it's deception.
 
I would have to agree with Blue! It's basically a lie.

A average web site owner does not use above 50 mb of disk space and 1-3 gb of bandwidth.

The only way the servers would overload is if all of the customers started using the allocated disk space and bandwidth. That still does not mean that they should be dishonest with their customers.

Not only are they being dishonest, but bringing the industry down.
 
Agreed with Blue. They're definitely counting on the fact that most folks will not use such allotments and if they do, well we can guess as to what will happen then :)
 
But don't you guys think that public companies make and should be making very accurate pricing decisions? Like calculating all fixed costs, then variable costs, adding the desired ROI, and coming to a conclusion of what the price should be?

In other words, if you had thousands of servers and datacenter - all already owned by you (as fixed cost) couldn't you charge less and less and still turn profit? The more fixed costs you have, the less you can charge per unit of production, isn't it?

So while the rest sees 500 GB for $5 as overselling, a company might actually have a small ROI calculated in that price.
 
So while the rest sees 500 GB for $5 as overselling, a company might actually have a small ROI calculated in that price.
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I'm sure that's the case. They're in it for a profit and I'm sure they get it. Question is, with that pricing, what's the level of service that can be provided to have that little something called a profit? :)

Also, 500Gb for $5 can't be anything else but overselling. :)
 
ldcdc said:
Question is, with that pricing, what's the level of service that can be provided to have that little something called a profit? :)
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If you have 5 customers paying $5/mo, you cannot expect good service - the costs are too high to sustain ANY service. :crash:
If you have 50000 customers paying $5/mo, you can arrange good service. :shout: :shaky:

ldcdc said:
Also, 500Gb for $5 can't be anything else but overselling. :)
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From whose perspective? The common mistake newbie hosts make is they assume they compete with globally recognized brands on pricing, so they oversell resource by giving away too much. Global brands might be turning quite a profit by selling those packages in masses - they have the reach and the muscle to make sure they profitably operate.


In other words, who is to say what's overselling and what's not? :dknow:

Best,
 
Artashes said:
In other words, who is to say what's overselling and what's not?
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The client.
Regardless of the size of the company they have fixed costs.
To be profitable at $5.00 for X number of accounts they still have to put XX number of accounts on a server. This results in server instability, and poor customer service because there has to be a low tech support/client ratio.

If service and stability are lacking then so to will be clients be lacking.

There are some well financed businesses out there who model on the shear volume business plan.
They don't give a damn if they lose clients because they know there will be plenty more around the corner. It doesn't mean they are not overselling it just means that they put dollars ahead of customers.
 
From whose perspective?
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From the definition of the word (to sell beyond means of delivery.) and from the fact that bandwidth costs are roughly known and consequently so are those of data transfer. $5 for 500GB can't be anything but overselling.

Now, the point after which overselling will lead to server overloading and overall poor service, is something that depends largely on the market that the host is targeting and the actual hosting solution used by the host.

There are some well financed businesses out there who model on the shear volume business plan.
They don't give a damn if they lose clients because they know there will be plenty more around the corner. It doesn't mean they are not overselling it just means that they put dollars ahead of customers.
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That's also true. :)
 
In my opinion, 1 GB or more web spaces and hundreds of GB bandwidth limits are nice for taking attention of customers but in reality it is not needed by approx. 99% of the customers.
 
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