More than ever, web hosting is one of the most perfectly competitive industries. By perfect competition, I mean an industry where there is competition that is so intensive that there isn’t a single player who controls majority of the market share. According to Webhosting.info, the biggest web hosting company out there is Godaddy.com which is no surprise. They were the pioneer of $6.95 per year domain registration while Network Solutions was charging $35 per domain name for one year. Since they were doing domain registration, it was a perfect next step if they entered web hosting since they were perfect compliments such as salt and pepper.
Web Hosting is one of the few perfectly competitive market out there. Let me explain why. In web hosting, there are a huge number of companies over a hundred thousand web hosting companies. Each of these companies is so small that if one web host decide to lower the price of web hosting or offer more features, there would be no significant impact on any other company. The market sets the price as the web hosts are all price takers.
In addition, each web hosting product is a perfect substitute of one another. There is no product differentiation, because a product from Lunarpages is the same as a product from Ipowerweb. Give or take, the control panel might be different and support will be different but the service of web hosting is still the same.
All people and businesses know how much price of web hosting is set by the firm. There is perfect information on everyone in the industry. With the vast array of forums such as WebHostingtalk.com, its no wonder that all firms know information about each other and there are no secrets in this business
Perfect competition requires that the following six parameters be fulfilled. In such a market, prices would normally move instantaneously to economic equilibrium. Anyone can enter the industry, as you would just need to purchase a server and you can just install a kit and you will be an immediate web host. There are no barriers to entry. You can enter and leave the industry at anytime without much consequence.
Web Hosting is such as vast and diverse industry that single individuals just can’t come together to try to control the market like the silver market back in the 1980s. Since web hosting is such a profitable industry, everybody wants to get into it, but because there are so many companies out there, the amount of customers growing to need web hosting is inversely related to the the amount of web hosting companies starting up. Eventually, web hosting companies will need to consolidate just to survive. We should be seeing much more consolidation in the future
