Plenty of auctions show up on different site auction sites selling free hosting sites. Free hosting sites are also showing up more and more. How do these companies make money by giving away something which takes other companies a lot of effort to run for payment?

A hosting company needs the following ingredients:

• server(s) to host on
• software on the server (an operation system and a management panel)
• support staff
• network and power to connect the server to

This is apparently no different for free hosting companies.

A paid hosting environment usually runs on Linux and cPanel software, the latter is costly software to manage the server with. In forums you can find that this software can handle 400 to 800 members per server. Let’s take a look at the cost factor of running a paid host: a server costs about $200 per month including cPanel. You can find this pricing here for instance. Paid hosting can be offered for $4.95 per month, making, on a full server, $2475 minimum and $3960 maximum per server; af very nice profit indeed.

However, this is not only profit: you need 24/7 support for your clients. For one server you won’t need more than 1 person. In the western world, such a person would take about $2000 per month, but in, for instance, India, it would cost only $200 per month. This would make the profit still minimum of $2000 per month. Next to this, you’ll be needing an administrator for managing the technical side of the server. This will set you back a few $100 more per month, but still, the nice profit remains. If you can get the clients.

The last point is immediately the reason why not many people and companies succeed at paid hosting; it is very competitive and very difficult to gain clients. Unlike free hosting; giving away free stuff works like a charm. Every day new free hosting companies are founded and getting hundreds of clients.

Now let’s project this on a free hosting company: as example we take a free hoster with 8000+ members. Free hosters make money with:

• selling paid hosting as upgrade option; most use Hostgator for this
• Google ads on the homepage and sign-up pages
• Google ads on the pages of the members
• Google ads on error (404) pages

Of the above, selling upgrades appears to be the most profitable. Watching the auctions and using my own experience, this should convert a minimum of 20 sales per month, which, at Hostgator, equals 20 x $125 = $2500 per month minimum. Considering that this would be interesting, however this is with 8000+ users, meaning 8000/400 = 20 servers or $4000 in the worst case and 10 server or $2000 in the best case. This is without support or paying an administrator which you really need when running 10+ servers.

Free hosting seems to not be profitable at all. Or does it? The reason why you do make a good profit while offering free hosting is in the software! You don’t use something like cPanel or another big and famous panel; you use a panel tailored to the free hosting market.

One of the biggest free hosting panels at the moment is LayeredPanel.com which appears to run under most of the free hosts in this world. Another one is Giantpanel.com which appears to be newer panel based on the development of Layeredpanel.com in their custom development and reselling program. GiantPanel.com gives you the same software but at a lower price.

The difference between these panels and other panels are the cheer performance benefit; they allow you to run 40.000-100.000 members on one single server. Immediately giving you the reason why free hosting is a money maker!

But it doesn’t stop there, both these panels offer a no effort plan. Layeredpanel.com shows on their salespage a package costing $260 per 6 months in which these folks offer to do everything for you:

• 3 layouts
• full support including user questions
• a license to Layeredpanel.com
• installation on a server

When studying the Alexa rankings and sales information of different free hosting sites, it appears that they form these 8000 members in about 3 months. Bringing us to the following conclusion:

• Cost: $260 + $200 x 3 = $860
• Income (estimated to growth): $300 + $1000 + $2500 = $3800

But this even gets better it appears: you can sell this kind of business easily for 3 to 10 times the monthly income, growing the income after three months to over $15000. This is an incredible figure but not unreal.

For webmasters wanting to run this kind of business for a longer time instead of making a fast sale, even more money can make by creating residual income.  You can become an affiliate of this company for instance and make money even years after the upgrade was done by your client.

According to me, free hosting is the best ‘get rich quick’ scheme of the moment. Even if you don’t sell after a few months, it’ll be a great moneymaker and the users are easy to get. If you don’t want to rent a server, you can even host (for $65 per month) your first 5000 users on the servers of Layeredpanel.com.

Will this market ever get saturated? The internet is growing and good freehosting is always wanted I feel; I think it will take years and years before this market is full. I’ll be building more free hosts for sure!

Interesting links:

• http://www.layeredpanel.com
• http://www.giantpanel.com
• http://www.sitepoint.com/marketplace/