Building a Premium Webhost

With an early start, this company has progressed from hosting personal websites to being the anchor tenant in a local data center. It's all about offering more to customers, and getting more from them.

by Alex Goldman ISP-Planet Managing Editor [June 15, 2007]

The company and its founders grew up in Cedar Falls, Iowa, but are now based in Chicago, Ill. The two founders, Ian Andrusyk (now president and CEO) and Travis Schaffner (now CTO), are co-owners of FastServers.net. They were fifteen years old when they started the business in 1995.

"There weren't a lot of hosting companies then," says Andrusyk. "As we continued through high school, the business kept growing. I personally was absent from school 30 to 40 days during senior year. We moved to a nearby city with a university."

They sold part of the company at the peak. "We sold our shared hosting company for about $2.3 million and took off. They started calling us in to be consultants, so we came back."

The new owners disagreed with Andrusyk and Schaffner about strategy. The two wanted to invest heavily in transitioning from shared to dedicated hosting, and the new owners did not.

"When they started talking about defaulting, we reacquired the business in 2001. We basically forgave their debt to us and gave them some money. We started running dedicated hosting in addition to shared. That was the direction I wanted to go in because we were competing with ridiculously low pricing. By 2004, dedicated hosting revenues had overtaken shared hosting, so we sold our shared hosting business along with the PowerSurge name. We had been using the FastServers.net name to market dedicated hosting and in 2004 we changed our name to FastServers, incorporated."

Dedicated
Now, the company uses three data centers, two in Cedar Falls, Iowa and one in Switch and Data in Chicago.

Isn't it cheaper and easier to run the Cedar Falls data centers? "Our growth was hindered by staffing issues. We differentiate our product by charging a lot more but offering fully managed servers. We have more staff per server than our competitors. We could not find enough staff in Northeastern Iowa and so we moved to Chicago to find staff."

The company is the anchor tenant in one of the Cedar Falls data centers. "A guy wanted to sell disaster recovery here and brought together a group of local investors (bankers, construction companies, etc.) The group wanted an anchor tenant to secure their investment. The data center consisted of two rooms (room 1 and room 2), and we agreed to occupy data room 1."

Selling big
The company had left the shared server business because of commoditization; now it began to worry about commoditization in the dedicated server market. "Companies were offering dedicated servers at $89 per month and we realized we could either become price competitive or concentrate on managed servers, on offering a complete solution. We didn't expect it at the time, but the reality is that we started to get a different kind of customer. Our high priced customers are easier to deal with than those that will jump ship to save $20 per month. Those are often the biggest pain on tech support."

The company's ARPU, Andrusyk says, is about $350 to $400 including software and management (both of which are more expensive for Windows customers than for Linux customers).

He says that 30 to 40 percent of the company's revenue is derived from its resellers, and that no particular business vertical is a large part of the customer base other than webshosting resellers. Webhosting customers are great because they keep ordering more. "If you're a growing webhost and you order five servers from us, we can expect an additional server every month. On the other hand, a corporate customer may order 20 servers, but their server needs don't change, so 20 servers now will be 20 servers two years from now."

As to compliance, the data centers are all built to such stringent specifications that the company has not bothered to be certified. "We tell our customers to send in the auditors and we will pass any audit with flying colors. In the future, we might decide to hold certifications, but we don't now."

Technology
Are you looking at any specific technologies now? "We always stay on the cutting edge. When we worry about technology, we worry about the products we offer. There's a huge push for Software as a Service (SaaS) and Web 2.0 and in my opinion we've been doing it for years and calling it a different name. One hot item was Exchange hosting. We launched our own dedicated Exchange server offering. We've started a product development division. We're looking at web applications like SalesForce.com and Google applications and we're going to keep up with that. We're always looking for ways we can make money on specialized servers and software."

The mission
Andrusyk has a clear idea of what his company does. Asked what makes FastServers.net different, he replies, "the people we hire, the engineers we hire, the support we give our customers. There are a lot of customers who don't necessarily need a full solution and need to save money. I don't want to bash other companies. We specialize in taking people who have need but may not know what they need to how to run it."

The future looks good. "We're a growing company. We're young. We're hiring people with many years' experience."

—End