Interview: 1&1 Internet CEO Andreas Gauger

1&1 Internet AG is the world's largest hosting company, with 3.5 million hostnames and 1.7 million active sites. On Jan. 22nd, 1&1 will officially launch its US hosting unit, having attracted tens of thousands of users with a pre-launch promotion offering three years of free hosting. 1&1 CEO Andreas Gauger recently shared his thinking on the company's US market entry and the state of the hosting industry. Gauger founded Schlund in 1995, which was bought by 1&1 in 1998.

Q. Some hosting professionals express concern about the "commoditisation" of hosting and its impact on business models and profit margins. Tell us about your philosophy on pricing and how it has influenced 1&1's business model.

A. It is true that there has been rapid growth in the global web hosting industry and indeed some markets appear to be saturated. Whilst this may mean less profit for vendors, ultimately, lower prices will mean more people using the web and so the industry will be stimulated to grow and develop new advancements in hosting technology. The more visionary companies such as 1&1 will use low prices to encourage as many customers as possible and reinvest profits into future developments. Companies such as 1&1 can increase profits by developing new features that generate more sales and increase revenue.

Q. 1&1 offers very low prices, yet is quite profitable. What are the key issues and strategies for 1&1 in managing costs and retaining a profit margin?

AQ.1&1 Internet has successfully implemented strategies that increase efficiency and flexibility within the organisation. We have benefited from automation, scalability models and mass production methods, which have made it easier to manage costs and pass on the savings to the customer. A key benefit has been the development of our own software to automate the processes for domain name registration and hosting.

Q. 1&1 has been a huge success in Europe. How do you assess the current competitive state of the hosting markets in the US and Europe? How do they differ?

A.In Europe one has to address the unique market of each country separately. Most European countries have two or three dominant players per country, mostly based within the country. In the US there are no dominant players as yet, but I believe that in the next 2-3 years we will see who becomes dominant there - a key reason why we have launched now in the US.

Q. What are your short-term and long-term expectations for the US expansion, and what are the primary challenges in achieving them? Are you considering further geographic expansion going forward?

A.In the short term we expect to sign up over 100,000 users for our promotional offer, an expectation we've already raised from 50,000. Indications are that we will easily achieve that goal. Another short term goal is the introduction of the paid services on 22nd January and certainly the success of these. The primary challenge will be finding a cost effective way to mass market our products and build our brand quickly. In the UK this required two years, and in the US we aim to achieve this more swiftly. Further geographic expansion might be seen in some additional European countries.

Q. What are your current arrangements and future plans for infrastructure to serve the American hosting operation?

A.Right now we are colocated in a high performance server center in NY. This space is equipped to facilitate the expected growth in 2004. During 2004 we will build or buy our own data center in the US.

Q. You've spent some time participating in discussion of 1&1 in online forums for hosting professionals here in the US. What do you make of the reaction to 1&1 thus far?

A.There has been some disbelief towards the promotional offer and naturally a lot of dislike from our competitors, but people have begun to recognise 1&1 as a real player in the US market. I have learned some interesting things about the needs of US customers that we shall now incorporate into the products to be launched on 22nd January.

Q. What are the advantages/disadvantages from the programmers perspective of using LAMP software (LAMP: Linux, Apache, MySQL, PHP, Perl, Python.) vs ASP.NET software to host a web site?"

A.It mostly depends on the programming environment you are used to. If you are familiar with the Microsoft development tools you should use ASP.NET. If you are more Unix experienced, than LAMP will do the trick. If you are a newbe, ASP.NET might be easier to start with.

Q. What's your opinion of virtual private servers and their potential? Is this a significant trend?

A.I personally dislike the idea behind VPS. You get Root access and can do everything on the server, but you share it with hundreds of other users. That doesn't make too much sense to me as you have freedom but no power to use it. VPS users are typically disappointed after some time using these services. Looking at the very low prices in the dedicated market, I don't see much space for such offers and certainly not a big trend towards it.

Q. What is your reaction to Verisign's domain wild card system?

A.Like a lot of industry people, we have some concerns that Verisign's "Site Finder" may indeed violate users' privacy. Examples include e-mails that may (temporarily or not) be stored on Verisign's servers, or password / user name combinations included in URLs being stored in databases on Verisign's servers. We believe that if Verisign is abusing its monopoly as a registry, this is wrong and against the spirit of freedom from which the Internet was born.

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