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Why Recessions are Great for the Web Hosting Industry

Brian Skewes 0

The latest assessments of the economic impact of the Covid-19 pandemic makes for distressing reading. Business prospects and market growth are down across many industries, with airlines, hotels, and retail businesses being particularly negatively affected. Take a look at the predictions for some other industries, however, and you’ll find that some sectors of the economy are quietly having quite a good time during the pandemic, and are expected to grow through the coming recession.

One of these industries is web hosting. There are some obvious reasons for this, and most clearly the huge shift to remote working and remote retail that has accompanied lockdown measures around the globe. But there are also some deeper reasons why web hosts do well in recessions.

That might not come as happy news to businesses still trying to maintain stability during the pandemic, or to protect themselves from covid malware. But in this article, we’ll take a look at why recessions are great for web hosts, and explain what other companies can learn from this. 

  1. Boom and Bust

If there’s one cliche that has emerged in reporting on the Covid-19 pandemic, and the looming recession it has caused, it’s the claim that our current situation is unprecedented. In some ways, that’s accurate. But it’s also worth noting that any tech firm that has been around for more than 20 years has already survived (at least) three recessions: the dot-com crash of 2001, the (also unprecedented) crash of 2008, and now this.

In each period of recession, the web hosting industry came out stronger than it entered. This is not to say, of course, that individual firms didn’t go bust (many did), but in general each recession of the past 20 years has led to growth in the sector.

Early predictions also seem to suggest that this will be the case in the recession we now face. The global web hosting services market is predicted to reach USD 76.2 billion at a 15.9% annual growth rate between 2018 and 2023, and the upcoming recession has made little impact on this prediction

  1. Web Hosting in a Recession

There are several good reasons why the web hosting industry continues to grow during each recession. One is that internet penetration rates have been rising across the globe for the last 20 years, despite relatively short-term downturns in consumer spending. As such, the size of the market for web hosting increased every year and is likely to continue to do so for another decade at least.

Then there are some more specific reasons why some web hosts do well during recessions. Facing reduced consumer demands, many businesses in “traditional” sectors will seek to limit their overhead costs in order to remain profitable. For most businesses, this means reducing two sources of cost: staff and rent. Moving a business online, or at least moving more of a business online, can reduce both costs simultaneously. And moving a business online means paying for web hosting, or upgrading existing web capacity.

Research also suggests that this is not merely a short-term solution to immediate difficulties. Once firms move more of their business online, it seems, they are reluctant to go back to “traditional” business models. This is particularly true of the retail sector, but is also the case in many other areas of the economy.

  1. Diversification and Innovation

Let’s also give credit where it’s due, of course. The reasons we’ve mentioned so far, you will notice, have little to do with the way in which the web hosting industry actually conducts itself. Given the surge in consumer demand for web hosting services over the past two decades,  you’d be forgiven for thinking that web hosts were simply in the right business at the right time.

In reality, the web hosting industry has been extremely adept at adapting to changing consumer demand. One of the reasons that established businesses find it so hard to go back to “traditional” business models after making a digital shift is that digital retail offers them a vast selection of tools that are simply not available in physical environments. Though the rise of consumer tracking has more recently led to increased consumer concerns about privacy, it has also revolutionized the way in which many businesses operate.

This innovation, in turn, can be seen as a consequence of the extremely competitive market for web hosting. Many web hosting firms structure their business so that they are quickly able to take advantage of huge, short-lived spikes in consumer demand, such as those seen over the last few months. But this adaptability can also be a curse: customers can leave just as easily as they join, and web hosts have been forced to innovate in order to stay viable.

  1. What We Can Learn

There are therefore a few key lessons that can be learned from the ongoing profitability of web hosting, even during an unprecedented recession. One is that the business model adopted by many web hosting firms is extremely well suited to taking advantage of unforeseen spikes in demand. In order to do the same, firms should make it as easy as possible for customers to buy or subscribe to their products. 

A second insight is that responding to social, political, and cultural shifts such as an increased desire for privacy is no longer an add-on for companies: it is a necessary part of the way that you position your brand. Today, customers are more likely than ever to make purchasing decisions based on how a brand values resonate with them, and that is especially true during tough times. 

Of course, if you are lucky enough to be in an industry that has seen spectacular year-on-year growth in demand for decades, you might not need these lessons. But for the rest of us, it’s worth learning from an industry that appears to be recession-proof.

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