Is a price war looming in the local Web hosting market? It appears that big changes may be coming that could put a smile on the faces of executives at SA companies, especially those running small and medium enterprises.

SA consumers and businesses have long complained about the high cost of hosting their websites in the country versus the sometimes negligible costs of offshore hosting.

Now, whisperings in the industry suggest the situation may be about to change, with Internet service providers saying hosting costs are too high and must come down dramatically.

Talk of much lower costs will be music to the ears of businesses, especially small companies, many of which have been forced to host their servers in Europe or even the US to save costs. This is far from ideal, as international bandwidth tends to be slower and less reliable than local bandwidth.

But prices in some parts of the world have fallen to such an extent that service providers charge less than €10/month — and sometimes as little as €5/month — to provide basic but unlimited website hosting on shared servers.

In SA, by contrast, service providers tend to charge incrementally for each service offered. They also charge clients for data transferred, usually measured by the megabyte.

Though SA finally has much cheaper fixed-line broadband thanks to dramatically reduced per-gigabyte charges and the recent introduction of uncapped services, hosting costs have remained stubbornly high.

It’s a problem that hasn’t escaped the attention of MWeb business division, whose GM, Andre Joubert, says prices will have to come down.

MWeb shook up the local market earlier this year when it introduced the first relatively affordable uncapped broadband offerings delivered over Telkom’s fixed-line network.

“The big capacity we’ve bought on the ADSL side will flow directly into the hosting side,” says Joubert. “The benefits have to flow through to our customers.”

Joubert says the big corporate customers are already seeing the benefits of lower bandwidth costs. But lower prices haven’t yet been passed on to small businesses and individuals hosting their websites locally.

Though he expects prices to come down sharply — and to do so soon — Joubert warns that they may never reach the levels they have in Europe and the US.

He says service providers in those markets have the scale that allows them to offer prices that may never be possible in the SA context, simply because the country doesn’t have the same level of demand.

However, hosting costs “will follow connectivity and bandwidth costs downwards”, Joubert says.

Afrihost CEO Gian Visser agrees. He says the hosting community in SA has long had a mindset that it cannot compete on price with international service providers. He says this has to change.

“We fell into this trap as Afrihost,” Visser says. “Our mindset was to compare ourselves to our rivals in SA and it was kind of accepted we could never compete with the overseas guys.”

Though SA will never quite match the prices that are charged by European and US service providers, Visser says local hosting providers can match the sort of services, like storage space, offered by overseas companies, and at prices that aren’t dramatically out of kilter.

“We have the same hardware and software and there’s no reason why we shouldn’t be competitive,” he says.

Visser says the approach to the SA market will change. He compares local hosting providers to people who said no athlete would ever run a mile in under four minutes.

“They said it was biologically impossible, that we didn’t have enough capacity in our lungs, and that our bones weren’t strong enough,” he says. “Then Roger Bannister came along and soon hundreds of people were running sub-four-minute miles.

“We’ve been looking at this the wrong way. We need the same mentality we have in ADSL bandwidth, where volumes have driven down prices.”

However, not everyone is convinced there’ll be big price drops in local hosting costs. The corporate market, in particular, shouldn’t expect prices to fall dramatically, says Internet Solutions MD Derek Wilcocks. He says skyrocketing electricity prices are largely offsetting any benefits from reductions in local bandwidth costs.

Wilcocks says between 20% and 40% of what clients pay for a dedicated hosting service is related to bandwidth. So, if bandwidth prices come down 50%, they can expect a 10% to 20% reduction in hosting charges.

In shared server environments, such as those used by European hosting providers to offer cut-rate prices, falling bandwidth costs have a much bigger impact on overall costs, he says. So, retail consumers can expect to benefit more.

Local bandwidth prices are falling by about 10-12%/year, Wilcocks says. However, rising electricity tariffs could negate the benefits for companies with dedicated hosting infrastructure.

“Power can be 20% or 30% of your total cost,” he says. “If you are not hosted in a shared environment, if you have your own server, then power is a big cost factor.”

Even though electricity prices have risen substantially in the past two years, Wilcocks says Internet Solutions’ hosting charges have remained flat or fallen slightly, mainly driven by falling bandwidth prices. — Duncan McLeod, TechCentral