For the last few years, the formula for successful hosting has been a simple one: build, market, repeat. But in the wake of the dot com collapse, providers seeking to expand their revenue in web and application hosting are finding that continually having to build new data centers to support their service offerings is a tough road at best.

Proving that necessity is the mother of invention, the hosting industry has created new tools that aim to eliminate the enormous cost of entering into new business regions.

Since having a web presence has become essential for business success, even small businesses are demanding dedicated servers to house their mission-critical data. To provide this service, a hosting company has to invest in three servers for every new client: the first for the site itself and the functional code, the second for the database, and the third for access and security - including firewalls, customer profiling, authentication etc.

Obviously, even for a large data center, all this hardware can quickly eat up rack space, making it hard to balance maintenance costs with hosting revenue. In a recent article [link] on Adult.TopHosts.Com, Verio revealed that it costs "about $600 per square foot to build one of their Premier Data Centers, which range from 30,000 to 120,000 square feet - that's $18-$72 million each."

For providers, investing in all this infrastructure is expensive from both a capital investment and real estate perspective - as they typically have to pay to store their network equipment in another carrier's switching offices of "carrier hotel."

The solution, is to maximize the potential revenue on each server - which inevitably means placing more than one client on each box. But what of those clients who demand the power of a dedicated server?

Two companies - Ensim Corp and Sphera Corp - have created an entire new genre of new application deployment and management strategies that can make a shared server as reliable, secure, and powerful - for about one tenth the cost of maintaining a dedicated server.

The advantage for the web host, is that they can now leverage their capital investment across multiple customers while offering services that still appear to be private - a "virtual private server."

For over two years, Ensim has been offering its ServerXchange VPS solution to hosting providers. Sphera offers a similar program via it's HostingDirector virtual dedicated server.

Both platforms have one thing in common that is very appealing to hosting providers - they both partition physical servers into a series of manageable virtual servers, while continuing to provide the scalability and root access that clients are used to with a dedicated solution.

Virtual servers provide per-customer per-application control of a single server partition, which can drastically cut capital and operational costs for a web host. Where typical dedicated infrastructure requires three servers per customer, ServerXchange and HostingDirector requires only one physical server - portioned for the functions mentioned above.

For the end-user, these platforms offer an appealing compromise between the high cost of a dedicated server and the less-reliable shared-server solution.

For established hosting companies who refuse to adapt, the VPS may pose a significant threat, as these platforms make it easier for new players and "upstart" hosting companies to offer robust, value-added hosting packages without having to construct their own data center. Both ServerXchange and Hosting Director are fully compatible with Linux, Sun's Solaris operating system, and Windows NT, and the allocation of resources such as disk and network bandwidth can be scaled in real time.

Furthermore, the high rate of technical knowledge required to maintain a dedicated server has been eliminated through the automation of server configuration, application installation, and upgrades - through easy-to-understand GUI control panels - which eliminates then data entry errors common to manual configuration of IP addresses, DNS's, and other critical account information.

VPS solutions have the potential to effectively make traditional shared and dedicated hosting obsolete. While a typical shared server allows hosting companies to offer affordable per-month rates, the unreliable performance and limited bandwidth creates a high degree of customer churn - as clients strive to "graduate" to a dedicated solution as soon as possible. On the other hand, highly reliable dedicated solutions can cost in excess of $500 per month - up to 10 times the per month fee of a VPS solution.