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Hosting Giants Teaming Against Small Businesses
BlueToast writes "Hosting giants SoftLayer, ThePlanet, Hosting Services Inc., and UK2 Group are teaming up to wipe out small competitors like SimpleCDN. Though ThePlanet isn't directly involved in the slicing of SimpleCDN's throat, ThePlanet runs the sales chat scripts for SoftLayer (check your NoScript). As a loyal customer of SimpleCDN, I really do not appreciate the disruption of service to a company I have been with for over a year. SimpleCDN's president wrote, 'Absolutely no valid reason or warning was or has been given for this termination, and our best guess currently is that these organizations could not provide the services that we contracted and paid for, so instead they decided that terminating services would be the best solution for them.'"
I spent 7+ years in the hosting industry. I can tell you right now that when Ditlev said his model "fully supports" customers doing 100TB month over month, my "bullshit meter" went through the roof. At best that was a simplification of his business model (sure, ONE customer can do 100TB month over month, as long as 100 other customer's don't - or perhaps he means 'sure, you can do 100TB for 3 months, as long as you don't use your server at all the other 9 months of the year').
So here's the real deal for you. The cheapest bandwidth I've ever heard of, ever, in the hosting industry was about 2 dollars/megabit, and this was NOT premium bandwidth, and it was single provider (Cogent). That price was let slip on the WHT forum, in fact, so I'm not giving away any privileged non-public information. Chances are good the top companies get even cheaper pricing (bigger than hosting providers) plus even hosting providers these days do a lot of peering to try to cut costs. But they also typically offer blended bandwidth from multiple providers (upping their cost/megabit), so the math below is still probably being too nice to them.
But let's go with this $2/mbit. There are 1000 megabits in a gigabit. That's $2000/month for a gigabit line. Now at best, a gigabit line can do 125 MB/s (in one direction - and since most these high-end bandwidth deals are typically charging on only the busier direction with the other way being 'free', that works for this example). 125 MB/s * 60 seconds * 60 minutes * 24 hours * 30 days = 324,000,000 MB / 1024 = 316,406.25 GB / 1024 = 308.99 TB. That's 308.99 TB for $2000. $2000 / 308.99.
That's $6.47 per TB. They're offering 100 TB. That's $647 COST per server (and I'm not even including the cost of the actual hardware here; that $201.15 lowest-cost server on their site is a quad core Xeon 3220 box that has some cost attached to it, and it eats power which has cost attached to it, plus you've got to factor in support burdern, infrastructure burden, etc, but hey, let's say by magic that's all free!).
Each server UK2 runs at that price is costing them 3x what they made on it in revenue, minimum.
Generally this works because every individual customer is not pushing 125 MB/s 24x7. Not even close. Most probably don't even push a third, so they're flat-out profitable. Others don't even push a tenth, others, not even 1 TB (I know this to be true personally, as I have a buddy with a 100TB server who does not push 1 TB a month - he's on 100TB because they actually had one of the best deals on a dedicated server from a cost per MB of RAM and HZ of CPU, on TOP of the 100 TB of 'free' bandwidth). They're making their money, like (news flash) EVERY OTHER HOSTING COMPANY - overselling. Do not listen to them say they can totally make money if every customer pushes max each month. They can't.
You want proof they can't? SimpleCDN represents a high-usage customer; possibly even approaching the 100TB on each server, if their software was good enough to not have CPU/RAM be the bottleneck. A CDN or other content streaming site is probably the single worst customer I can think of for an overselling operation; and lo and behold, they've been shut off. Case closed - they cannot actually provide every customer 100 TB a month. They can provide a certain % of their total customer base 100 TB a month, and then it's not profitable anymore.
Good news for all the rest of 100 TB's customers is that with SimpleCDN gone, now there's probably more chance of them getting away with 100 TB/month for a few months without being shut off. :)
Now to be clear, I'm pinpointing UK2 group here, but this could be Softlayer. If UK2 group is getting a super deal on bandwidth from Softlayer and it's Softlayer who is essentially overselling (plausible), then they're the ones likely pushing for the shutdown of SimpleCDN. Whoever's business model actually has the oversell in it (or both of them) is the one who's happiest to see SimpleCDN go.
Truth is, a company as large as SimpleCDN s