Why do web hosting companies have reseller plans, and why are they willing to sell their services at a discounted rate to resellers?
Put simply, resellers generate sales for hosting companies. With revenues being the name of the game, sales generation is of tremendous value to web hosting companies. By independently marketing and selling a hosting company's services, resellers bring the hosting company clients that it might not otherwise have had.
This is particularly valuable in the web hosting industry. As industry estimates continue to suggest enormous profit potential from aggressive, unmet demand, new entrants are attracted to the industry every day. With the number of web hosting companies rising, the market is becoming more competitive, and prices are falling. Thus, with web hosting fast becoming a commodity and prices falling all the time, volume (that is, the rapid accumulation of large numbers of clients) has become the most profitable and competitve strategy for large-scale web hosting companies. As a cost-effective and efficient sales channel, resellers provide web hosting companies a means to quickly aggregate clients.
There are two reasons that hosting companies offer resellers discounts. The first is the age-old law of wholesale: buy in volume, receive a discounted per-unit price. It is absolutely worth a hosting company's while to offer a reseller a 30% discount on each of 100 hosting plans he has resold. Obtaining these same 100 clients through the hosting company's own expensive marketing and sales efforts would have cost decidedly more than the discount given to the reseller.
The second reason for the discounts is simply competition. Discounted prices are one of many features web hosting companies can competitively offer to obtain new resellers.
