SoYouStart, online.net, and kimsufi are different options that provide data centers in France and Canada. It's natural to wonder if there's a catch behind their affordable prices for dedicated servers.

The website www.online.net/en/dedicated-server/dedibox-xc offers a small blade in a large block, with 8 cores and 8 gigabytes of RAM at 16 euros/month without tax. Assuming the operating costs are 6 euros, this leaves 10 euros/month to recover the cost of the blade. How many years will it take to pay off?

The main reason these companies exist is because they have stable operations in Europe. They offer a 10% yield and the payback period for business investments is 5-10 years, which is great for big businesses but not as significant for smaller ones.

On average, the payback period for the piece of iron is six months, but it could be up to a year. These companies receive huge discounts for iron, so even if it doesn't pay off, they can still sell it for half price or auction it off at a discount.

Automation is a key feature - servers are installed automatically, and support works according to strict instructions.
This ensures that the support team spends their time working on hardware instead of spending hours on the phone with customers.

Companies like hetzner benefit from cheaper electricity and construction costs, as well as lower taxes and loan rates. In my experience, their services are superior to those of any host - their network and electricity are reliable, and they replace faulty hardware quickly. Overall, there is no deception or trickery involved - these companies simply offer high-quality services at a lower cost.

The reason for the low prices of Hetzner, OVH, and other similar providers is not deception, but cutting costs wherever possible. This often translates to a lower level of service and support quality, which clients can receive for free. As a result, clients may experience high fees for equipment installation, lengthy correspondence with support, significant delays in resolving technical problems, and limited options when ordering configurations.

Additionally, providers may exhibit inflexibility and a lack of willingness to compromise with clients who are perceived as "problematic", rather than making an effort to understand and resolve the situation amicably.

Many customers who opt for the cheapest configurations offered by these providers may initially feel pleased with their savings. However, it is important to keep in mind that problems may arise.

Why do you care how they make their money?

I have servers in SoYouStart, online.net, and kimsufi.

The caliper's slow reaction is its only downside.

Once I had a server crash at online.net, which led to two weeks of correspondence with an unresponsive support technician who could not comprehend that the server was beyond repair. The processor had unfortunately burned out.

However, I have no complaints regarding SoYouStart and kimsufi.

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To determine how long it takes to pay off the cost of the server, we'll need to know the upfront cost that the hosting provider needs to recover.

Without having the actual cost of the blade (the server hardware), let's assume for the sake of this question that it's around 1,000 Euros, which is somewhat typical for a mid-range dedicated server.

Given that there's net profit of 10 Euros/month after deducting operating costs, we would calculate the recovery period as follows:

Total cost = 1000 Euros
Monthly profit = 10 Euros
Recovery period (in months) = 1000 Euros / 10 Euros/month = 100 months

This is about 8.3 years (100 months / 12 months/year).

Keep in mind that this is a very basic calculation and in reality the recovery period might be shorter or longer depending on various factors, such as changes in the cost of hardware over time, variability in operating costs, the time value of money, and more. It's also important to consider that hosting providers typically benefit from economy of scale and they might be able to get hardware at a lower cost than general market price.

In addition to the basic calculations I mentioned, data center operating costs can vary dramatically based on a myriad of factors such as:

Energy costs: The cost of electricity can vary greatly in different regions and at different times. Servers need a consistent power source to remain online and operating, which can be incredibly expensive. Furthermore, servers and data centers generate a lot of heat, so cooling infrastructure is essential, which also adds to electricity costs.

Maintenance and repair: Over time, servers need maintenance and repairs to continue operating effectively. This can include costs for in-house staff or support contracts with hardware vendors, as well as the cost to replace parts or whole servers.

Network Costs: Data center operators have considerable costs related to network infrastructure, including network hardware, transit and peering costs, and other related expenses to ensure robust and redundant connectivity.

Tax and Legal: Depending on the jurisdiction, taxes, and regulatory costs can add significantly to the operating costs.

Security: This includes both physical security to protect equipment from theft or damage, as well as cybersecurity measures to protect data.

Very often, companies like SoYouStart, online.net, kimsufi, etc., purchase server hardware in large quantities, benefiting from significant volume discounts. They also reap the benefits of economies of scale with their operating costs.

Moreover, it's important to note that server hardware has a finite lifespan and will depreciate over time based on accounting standards. Therefore, companies have to account for depreciation when calculating their recovery costs.

Lastly, these providers often have additional services they sell alongside the bare server hosting – such as outgoing bandwidth, backups, load balancing, premium support, managed services, etc. These can substantially increase their revenue and return on investment, shortening the pay-back period.

Looking more closely at these services, it's important to understand they're not intended to fit all purposes. Companies like SoYouStart, Kimsufi and online.net primarily target the lower segment of the market with a focus on affordability over high-end features, dedicated support, or premium services. This is not to say that their servers are inadequate, but they are tailored to customers who primarily require affordable barebones server hosting.

Now let's go a bit more into detail about other factors and strategies that may contribute to their ability to offer such affordable dedicated server options:

Hardware Efficiency and Utilization: Efficient use of server resources is a key strategy for maintaining affordable server costs. For example, while a large enterprise may purchase and provision dozens of servers that only run at a fraction of their total capacity, a dedicated server provider can configure their servers to run at a high level of utilization, which translates to more revenue per server and greater overall efficiency.

Economies of Scale: As they operate many servers, these companies can achieve economies of scale that reduce their per-server operating costs. These savings can come from factors such as bulk purchasing of server hardware, streamlined server maintenance processes, and efficient use of data center space and energy.

Business Model: These companies often have a different business model compared to premium-priced competitors. For example, whilst premium services may offer extensive customer service and technical support, these affordable providers might provide minimalist support, expecting customers to be more self-reliant. The reduced service cost is passed onto the customers in the form of reduced prices.

Asset Depreciation and Refresh Cycle: Hardware loses its value over time (depreciation) and technology innovation keeps up a steady pace, meaning that at some point, it would be inefficient from a performance-to-cost perspective to keep older hardware running. Depending on this refresh cycle, the initial investment into hardware can be "written off" faster and thus, older, fully depreciated, but still serviceable hardware can be offered at a lower price point.

Ancillary Services and Upselling: The low prices could also be part of a strategy to attract new customers, which then could be upsold on additional services — enhanced support, backup services, added security features, software licenses, etc. The profit margin on these additional services could be relatively high.

All these factors together make it possible to offer more affordable server hosting solutions, but again, it is crucial to understand the trade-offs involved. Depending on your specific needs, it may or may not be a good fit for your project or business.

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