May 20, 2003

Open source helps drive dedicated hosting prices down, down, down

- By Robin 'Roblimo' Miller -
When ServerBeach advertises dedicated servers for $99 per month (plus setup fee), that price is for servers running Red Hat Linux. A Windows server costs $119 per month. ServerBeach founder Richard Yoo says, "We pay Microsoft for the Windows OS, and, of couse, Linux is free. We are just passing on the cost to the customer."

Yoo adds, "And in actuality, our pricing on Windows is very aggressive."

Since these servers are all directly managed by customers, not by ServerBeach, administration costs are not a factor. According to Yoo, the Linux/Windows price difference reflects the license cost difference alone.

And -- not that this should be a surprise to anyone -- Yoo says, "So far, we are seeing more volume on the Linux side than Windows."

He also says, "I think that price probably does have an impact, but really I think it has to do with the fact that our product is unmanaged, and therefore our customer base is probably a bit more technical, and in turn, I believe that technical people like using Linux over Windows."

Before ServerBeach, Yoo helped found Rackspace, a highly-regarded (and consistently profitable) server provider.

Rackspace, which does manage servers for its customers, shows an even higher price difference between servers running open source and closed source operating systems. Their lowest advertised prices for Linux or FreeBSD servers are $250 per month, while the lowest they go for a Windows server is $365 per month.

Yoo says ServerBeach is not trying to compete with Rackspace; that he is now targeting individuals who want "personal servers," along with small businesses that, as he puts it, "liked the idea of Rackspace and everything it had to offer, but their application wasn't all that mission-critical, nor did they have the budget to afford Rackspace's fees."

He adds, "The ServerBeach offering is much simpler than Rackspace. We have a cookie-cutter philosphy so we can make the buying process easier for the customers, and by eliminating complexity we can lower costs substantially.

ServerBeach is not the only sub-$100 dedicated hosting service in the world. Indeed, Yoo believes we are going to see more competition in the low-cost dedicated server marketplace in the future. His exact words:

"If we look back even just 18 or 24 months, the idea of selling a dedicated server for $100 per month would have been simply crazy. The cost of infrastructure and hardware simply wouldn't have allowed anyone to stay in business at that price.

"However, times have changed a bit. We have a data-center glut. There is square footage available everywhere for pennies on the dollar, and everyone knows that hardware prices have fallen through the floor, so these disruptions in pricing have allowed the $100 price point to emerge as something that's very doable these days.

And, he concludes, "If hardware and infrastruture prices continue to plummet, I think we could easily see prices continue to fall."

Yoo also believes Microsoft is working hard to maintain at least a foothold in what we might call the "commodity dedicated server" arena. He says, "Their prices have come down quite a bit lately. Furthermore, they're launching their 'Web Edition' of Windows that's directly poised for this space.

"The real interesting thing is that there are LOTS of windows users out there who are very comfortable with hosting their content on the Windows platform, so I think even if there is a price delta between Linux and Windows, people will continue to use Windows."

Open source behind the curtain

Even if some ServerBeach customers prefer to run Windows on their servers (and are willing to pay extra for the privilege), Linux and open source are still a major factor in holding prices down -- and ServerBeach actively supports open source even though the company does not officially favor one operating system or licensing methodology over another.

Yoo says, "Our entire business at the Beach is run on open source software: Linux, PHP, Python, Apache, etc. We are huge believers in open source and use it everywhere and anywhere we can.

"As far as giving back to the community, we report bugs and submit bug fixes all the time. We really haven't written anything too interesting to bundle up and give away. Most everything we're doing is 'gluing' -- that is, making all the different systems work together.

"We've pretty much found everything that we need already there, so we probably spend about 80% of our time debugging and fixing other people's open source code, which may not be too exciting to hear, but is very important nonetheless."

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