Unless you've been living in a hole in the ground, chances are you've heard about (and probably participated in heated debates discussing) Web hosting overselling over the past couple of years. However, one aspect of overselling is rarely discussed: the long-term effects on the Web hosting industry.

This is often not realized, but any trend has a long-term effect on something. In this case, how does overselling affect the Web hosting industry a year from now? 2 years? 5 years? This is what I hope to shed some light on.

First, let's look at what is driving overselling: competition. In fact, when it comes to hosting, I think the word competition is an understatement! This is one of the most cutthroat industries in the world, and many smaller hosts don't stay in business long because of it. Overselling by hosts came about as a reaction to competitors, and not to customer needs. This rightly implies that there is no financial justification or reward for overselling. In fact, when practicing overselling a host has to hope and pray that (even just a fraction of) users don't try to use all of the disk space and bandwidth allotted to them: if this was to occur, the host would be too underfunded to provide all of the resources, and in serious financial trouble. Even worse, however, overselling requires no commitment from the host in terms of finances, intellectual property, or human assets; this means that any host can engage in overselling, so most do.

A second factor we need to take note of is that overselling does not give a host a true competitive edge: because we know that no special investment of money or resources is required to oversell, and because we also know that no direct financial reward is experienced because of overselling, we can then infer that it is akin to good old-fashioned price wars. In other words, overselling is pointless, and is destroying many Web hosting companies as it runs its course. If Hosting Company A has the ability to oversell, and Hosting Company B (which happens to compete with A) already is, then we know that A really has no choice but to oversell, just to keep up. (Read on to find out why.) But, this does not mean that Company A is now more competitive (or that Company B was before Company A began to oversell in the extreme) - users do not gain anything real just because two Web hosting companies upgrade their plans to ridiculous amounts of disk space and bandwidth.

Overselling has also distorted customer knowledge of the hosting market and needs-based analysis of hosting plans. Instead of learning to use rational evaluation techniques of each hosting plan under consideration, customers have been "trained" through constant exposure to ads emphasizing high disk space and bandwidth (and little else) to choose the host that offers the most disk space and bandwidth for the least amount of money. In this scenario, hosts not overselling really don't have any choice but to also oversell - customers only think they're getting a good value when purchasing services from an overseller.

So, what does this mean for the industry? It should be pretty obvious: overselling is not a sustainable practice from a financial standpoint. Between the expenses incurred in marketing (now up to $100 - $200+ per new client acquired) and the expenses related to providing a large amount of resources to oversold hosting users, smaller companies cannot continue operating much longer. Even large players like GoDaddy and 1and1 will soon have to develop alternative strategies if they wish to secure their operations in the future. This is not a bad thing, but it does mean the following will happen:

• Smaller Web hosts will engage in M&A activities at a very rapid pace over the next couple of years, as they look to bulk up and create financially sustainable businesses. Sadly, even more small hosts will be forced into bankruptcy and dissolution, and many Web hosting clients will be victim to sudden Web hosting company shutdowns. When it's all said and done, 10 - 30 larger players will be left as dominators in the industry, together holding a market share somewhere over 80%.
• Prices for basic Web hosting will rise a few dollars per month, and month-by-month payment plans will become more popular again.
• Web hosting will take on new services, providing whole "Web presence" services (instead of just Web hosting) for an even higher monthly fee. (Since customers cannot, at this point, be re-educated as to the fact that a good host is more than large amounts of disk space and bandwidth, other services will have to be added so that the host can increase prices.)

My personal view is that one day soon, we will likely see the emergence of "Web presence solutions" that are all-encompassing Website hosting, creation, and marketing packages, and which will sell for as much as a broadband Internet connection does today. "Basic" Web hosting (what we know now as plain old Web hosting) will be priced in the $10 - $20 range.

Again, overselling is not a sustainable business practice for hosts, and I hope with this article I have helped to explain why that is the case.

D B

Daniel Briere is the owner of 900MEGS.com ( http://www.900megs.com ), a very popular free Web hosting service. He has been in the Web hosting industry since August 2004.