DaveNet: Monday, May 26, 1997; by Dave Winer.

Economics of ISPs

From Brad Schrick, brad@brad.net:

Anyone who is co-hosting websites for $30 a month will go broke. For the most part, anyone doing it for less than $300 a month will go broke, and not much slower.

Do the math. A T1 costs $10-20K to set up, then $1-4000 a month, and then a few someones have to hang around and watch it constantly ($5-10K a month). Two T1's are much better than one. At this point, no rent, phone, insurance, furniture, or other little incidentals have been paid for.. $30 therefore pays for roughly 1/300th of the monthly expense of a minimum ISP, and about 1/1000 of a somewhat more serious one, and so on, without paying back anything for the capital invested, much less paying a return.

Smart ISPs look for customers/partners who are glad to not have to install, pay for, configure, reconfigure, and watch high-speed lines, while monitoring dozens of Internet services. That is, we try to avoid those who are asking for some of the most valuable business services in the world in return for less than the average business phone customer pays.

One of the principal reasons that ISPs are more touchy about this than the phone company is that any given customer can cause complete havoc on the ISP's connections with their one server, affecting all of the other customers.

Contrary to rumor, almost any Mac is completely capable of choking a given T1. Those who don't choke the T1 can easily cause a spam fight, or be the target of one. For similar shared-resource reasons, it's not common to allow custom CGI's on a shared server, either, which brings us back to the $300 a month range, just to cover the risks.

$300 is serious money, make no mistake. But if $300 is not one of the smaller monthly expenses for the customer, there are likely other problems.

For those who disagree, please send your audited cohosting financials and reports for at least the past twelve months showing positive cash flow and growth, with paid salary, paid employees, paid taxes, paid bills, and happy customers.

Brad Schrick
Mon, May 26, 1997