Hosting Wars Heat Up as Microsoft Readies Free Service

The hosting marketing wars are heating up, with leading providers rolling out dirt-cheap shared hosting accounts with massive allowances of disk space, bandwidth and e-mail. Hosting behemoths 1&1 Internet and Go Daddy are competing for small business customers, while also raising the bar for Microsoft, which will begin offering free web hosting and free domain names early next year.

The intense competition for small business customers is further commoditizing the shared hosting space, as plans with monthly fees under $5 now offer more resources than most prospects can imagine, much less use. That's good news for hosting customers, but a challenge for smaller hosting providers, who are pursuing new services and strategies to capture profitable niches.

The latest salvo came Wednesday from Go Daddy, which announced a tenfold increase in the disk space and bandwidth specs on its entry level shared hosting plans. For $3.95 a month, web site operators get 5 gigabytes of hard disk space and 250 gigabytes of data transfer. The company also lowered its domain registration fee to $6.95 per year, good through Nov. 30. "Customers won't find a better hosting price, product or service on the Internet, period," said Go Daddy President and Founder Bob Parsons.

When Go Daddy introduced its hosting plans in 2003, a $3.95 a month account featured 25 megabytes of disk space and 1 gigabyte of data transfer, levels equivalent to less than 0.5 percent of the new specs. A customer using all of the allotted 250 gigabytes of monthly data transfer would pay 1.6 cents per gigabyte. By comparison, many hosting providers charge $2.50 to $4.95 per gigabyte when a customer exceeds their monthly allotment.

Go Daddy's announcement follows last week's debut of new $2.99 a month plans from 1&1 Internet featuring a domain name, 1 gigabyte of web space, 2 gigabytes of email storage and 50 gigabytes of monthly transfer.

On Tuesday Microsoft unveiled a preview of Office Live, an element of its new push to deliver services over the web. Office Live will provide companies with their own domain name, web site, and e-mail accounts for free, according to Microsoft. The accounts will include 30 megabytes of storage, five e-mail accounts, a WYSIWYG web design tool, and analytic software to interpret traffic data from server logs.

But Microsoft's free hosting will also come with advertisements, which is likely to be an issue for many businesses seeking a professional web presence. Advertiser-supported free hosting services have been around since the mid-1990s, including offerings from Yahoo through GeoCities and more recently its Yahoo Local! service, which have peacefully co-existed alongside Yahoo's paid small business hosting.

While Office Live is unlikely to put large hosts out of business, the pricing wars continue to squeeze smaller hosting providers, who are increasingly looking to converged services such as VoIP as the next frontier in value-added hosting. The industry consolidation is also likely to continue, as some providers opt to cash out to take advantage of merger and acquisition activity in the shared hosting sector.