Category Archives: Web Hosting

cloudways by digital ocean logo

Analyzing Digital Ocean’s First Major Move with Cloudways

Disclaimer: I own/have owned shares of $DOCN (Digital Ocean). All opinions and analysis aren't financial advice. I attempt to be as impartial as possible, but disclosing the financial relationship is important for transparency.

Cloudways [Reviews] announced their first price increases since 2017 today on their blog, which will take effect April 1, 2023. This is interesting because it's the first major move since Cloudways was acquired by Digital Ocean [Reviews] in August 2022 for a whopping $350 million.

There is a very nice looking chart which shows you all the price changes by cloud provider.

cloudways pricing chart

Cloudways pricing change chart

The chart/tool is very easy to understand and clearly shows users the price increases. I appreciate clarity, transparency and notice about the price increase.

The increase did strike my curiosity though. How were the price increases distributed by cloud provider since Cloudways suddenly has a vested interest in Digital Ocean's success. There are so few publicly traded web hosting companies; so I enjoy analyzing the few there are. Digital Ocean may be the only meaningful publicly traded company in the US (sorry Rackspace, things don't look good looking on the financials and the recent hack doesn't help) that focuses solely on web hosting (Amazon, Google, Microsoft, GoDaddy all compete in multiple spaces beyond hosting). I used to enjoy analyzing Endurance International Group (EIG - currently, Newfold Digital) when their financials were released as they were a pure web hosting play but were taken private a few years ago. Today, I get to analyze Digital Ocean's first move with Cloudways and then look later to see how it actually played out when financials are released. Without further ado...

I spent longer than I care to admit creating the following spreadsheet. I wanted to know how much the providers charge, how much is being charged now for the instance and how much it's going up by in absolute and percentage terms.

The results were inline with what I expected. Digital Ocean, especially at the lower tiers, is getting an incredibly favorable deal versus its competitors.

If we look at 2GB ram instances across providers we would see the following:

cloudways pricing 2gb

2GB Pricing Comparison

What's interesting is that Digital Ocean seems to have had the best deal before the price increases by a significant margin. The 2GB instance is more expensive ($12) at the provider than Linode/Vulture ($10) and is selling cheaper by $1-2 on Cloudways before the price increases. The markup difference is 83% for DO and 130-140% for Vultr and Linode respectively.

After the price increases the difference is even more pronounced with Linode and Vultr ending at the same 180% markup while Digital Ocean is only at 100%.

I became even more curious. Amazon and Google don't seem like the biggest direct competitors to Digital Ocean, they have much higher pricing already. I suspect if you're picking Amazon/Google, you're picking them for the brand already, not the price to performance ratio. Linode and Vultr definitely have been comparable services to Digital Ocean for a long time. How did markups vary between them?

Digital Ocean vs Linode vs Cloudways - New Markup %

At the 2GB level Linode and Vultr were standardized in the price increase, but the differences afterwards are interesting. Linode actually becomes more marked up for the next tier up. Afterwards they all decrease in markup %. It's interesting to note Vultr's markup goes down more than Linode despite starting equally at the 2GB price tier.

Digital Ocean's markup goes negative at the 32GB tier (and the plan itself offers vastly more resources than the publicly listed plan in terms of storage and data transfer). So it's actually cheaper to get a 32GB plan through Cloudways than buying direct at Digital Ocean. That is certainly one way to attract new higher value customers to the platform.

Analysis

After spending time looking at the data, the price increases would seem to indicate a clear message. Digital Ocean owns Cloudways. It's making itself the most attractive option on the platform, even offering better deals than they offer direct in some cases. That is exactly what I expected after the acquisition, Digital Ocean should be leveraging Cloudways to increase it's value. They would be capturing margin on both the underlying infrastructure provided by Digital Ocean and from the management/services layer offered by Cloudways.

The concern as a consumer would be getting pushed towards certain infrastructure providers by pricing options controlled by the middleman instead of the infrastructure providers themselves. Does this open the door for more widely for competitors to step in and offer management/service layers that are multicloud with less pricing inequality? Are most consumers already price conscious and using Digital Ocean through Cloudways?

As an investor, I would have similar concerns about what it would do for the brand and competition. I thought the acquisition of Cloudways was smart by Digital Ocean (perhaps maybe not the purchase price, but the company itself makes sense to own). It meant for every customer on Cloudways, Digital Ocean would be getting a cut - even from customers using their competitors. That seemed like a great model. If Digital Ocean puts a slight incentive to use them as the infrastructure provider as well, it makes even more sense. I just hope the price point keeps them competitive as an option on the other clouds so they can continue to take a cut of every hosting transaction regardless of the cloud provider versus becoming solely a funnel for Digital Ocean products.

The price increase timing also indicates Digital Ocean, the publicly traded company, which recently went through a round of layoffs, likely needs to become profitable as it recorded a loss last quarter. It has only recorded a profit once, the quarter before last. With rising interest rates and tech stocks collapsing, it probably isn't the best time to be growing by taking on more debt and running at a loss. We've seen a lot of providers raising rates lately using justifications of energy costs, inflation and probably other reasons. It's probably a reasonable time to pull the trigger on the increase given the macroeconomic circumstances.

Cloudways was expected to generate roughly 50 million in revenue in 2022, so adding a 5-10% increase in revenue would be 2.5-5 million on an annual basis or 625k-1.25m on a quarterly basis. Considering Digital Ocean had a loss of 10m last quarter, that could make up over 10% of the shortfall from being profitable. A not insignificant chunk.

I don't know what the math looks like behind the scenes. I am just doing napkin math and using a bit of intuition. I am sure someone calculated and estimated the impact of the price increases and how they were applied. I will be interested to see the earnings each quarter for the next few months to measure the impact. I also wonder if Cloudways revenue will be broken out separately or not. Hosting is often quite an inelastic product, it's a pain to move and change. If someone calculated everything correctly, this could be great at helping Digital Ocean return to profitability in the short to medium term. I look forward to seeing how Digital Ocean performs in the future.

Ethics and One Tweet’s Impact on Digital Ocean

I am speaking at HostCamp (side event to WordCamp Europe) in a couple weeks on the topic of Ethics in WordPress Hosting. I'm not really sure WordPress hosting has any specific differences from web hosting in general when talking about ethics. But ethical behavior in the web hosting space is something I talk about a lot. I also aggressively call out people/companies behaving unethically on this blog in the web hosting space. [1] [2] [3] [4]

As I was writing a response to a short interview to introduce the topic, I tried to think about a relevant example of why ethics matter in web hosting. A very recent event jumped to mind, someone tweeting that Digital Ocean [Reviews] shut down their company.

This tweet was sent by @w3Nicolas.

The stats are staggering:

That's only in the communities I participate in, I was sent the link by multiple people in other groups as well. I'm sure tens of thousands of people, if not more, read about this incident.

 

This is a view into what that tweet did to Digital Ocean's data here on Review Signal (I track Twitter data and sentiment about web hosting companies for the unfamiliar). I pulled the past 30 days of Digital Ocean information.

The tweet was sent on May 31, the 4th data point. We see an enormous jump in tweet volume. The preceding days had an average of 248 tweets per day. May 31 had 2000 and June 1 had 2489 tweets, nearly 10X the normal volume for two days. By June 4, we're down to 274 tweets, a normal volume. The internet outrage machine was out in force and spreading the word.

Digital Ocean responded on Twitter with Moisey Uretsky, a cofounder, intervening to escalate and resolve the issue. Digital Ocean also released a post-mortem on June 4 about what happened as promised (Nice to see a company keep their word and admit mistakes).

What does this have to do with Ethics?

Why did I even write this story and what does it have to do with ethics? The question I was trying to answer when I started thinking about this incident and digging into the data is "Why should hosting companies and those who do business with them care about ethics?"

A lot of developers and entrepreneurs read a story about a guy who was shutdown without warning, and then locked out seemingly permanently without being treated fairly. It strikes a chord with people when someone is being treated wrongly/badly with no explanation, especially when it's their livelihood that is impacted. It violates a fundamental moral code of fairness and trust.

The impact for a perceived ethical violation in this case was tens of thousands of people reading a negative story. It generated heated discussions and some very negative comments.

My data showed a tremendous increase in negative messages with the ratio dropping to 34% (Digital Ocean has historically over 70% positive messages).

They were quick to jump into some of the communities and address the issue. The post-mortem on Twitter received 225 Likes and 62 Retweets. That's 2.4% the amount of retweets and 4.9% the Likes. The impact of addressing the issue and trying to improve made a tiny fraction of the impact.

I will be clear here, I don't think Digital Ocean acted maliciously or unethically (intentionally). It sounds like a combination of automated system and a couple human mistakes lead to a very bad outcome for a customer that attracted a lot of attention. The way it was portrayed evoked feelings of an ethical violation of fairness and trust.

Digital Ocean's post-mortem's conclusion:

We wanted to share the specific details around this incident as accurately and quickly as possible to give the community insight into what happened and how we handled it. We recognize the impact this had on a customer, and how this represented a breach of trust for the community, and for that we are deeply sorry. We have a number of takeaways to improve the technical, process, and people missteps that led to this failure. The entire team at DigitalOcean values and remains committed to the global community of developers.

So when companies think about how they should behave, I want to use this example as an argument that people do care about companies behaving ethically and awareness of their behavior can quickly be amplified when a person's story resonates.

Hostinger Review

Hostinger Review – 0 Stars for Lack of Ethics

This is Review Signal's FIRST review of a web hosting company! I hope you're excited.

Background

This is a follow up to our original blog post exposing Hostinger's fraudulent reviews which were encouraged and defended by their CEO.

Part 1

Most companies would reconsider their behavior after being caught and called out so publicly. But Hostinger is a special kind of company. The kind where the CEO seems pathologically intent on deceiving customers and passes his values down the corporate chain.

Hostinger's follow up performance was their notorious 'brand ambassador' program. Screenshots below take place on the WordPress Hosting group on facebook around April 19, 2018.

This 'brand ambassador' was caught within an hour of posting. One Hostinger rep jumps in to defend this practice (Daugirdas Jankus, a familiar name if you read the first article). The 'brand ambassador' also tells us there is 32 brand ambassadors in this program. Their CEO, Arnas Stuopolis joins in as well.

The entire thread devolves into a joke with their brand ambassador embarrassing himself. Arnas doesn't do his company any favors either. He even tries to use Hostinger's TrustPilot rating to defend himself. Yes. The very same ones from the last article which exposed his employees were manipulating with his blessing. The full thread can be read here (warning: long).

Part Two

Then the next part of the saga starts with Arnas Stuopelis issuing a statement to the group.

He uses the same lines, including defending their Trust Pilot reviews which were manipulated by their employees. He gets called out immediately, because he's lying.

Of course I had to go grab a screen shot as he made these statements. His 'brand ambassadors' are also posting reviews on Trust Pilot. Posted after he became a brand ambassador of course, wouldn't want to think a legitimate customer posted a review and then became an ambassador after all.

Of course, this was brought up with him at the time as well.

I lay out the evidence. Multiple 'brand ambassadors' posting in multiple places (including commenting on here on Review Signal) trying to promote Hostinger. Posting fake reviews. Hiding their relationships. The exact behavior that got them in trouble the first time.

Apparently laying out all those facts is 'missing the point.'

Just like their employees are customers, brand ambassadors are customers too and he seems to believe they should be feel free to spam communities all over the internet.

Brand Ambassador in Hostinger : I had been the brand ambassador for the company Hostinger and am still working as a brand Ambassador and I met lot of people from abroad and we work together as a team for the growth of our company. (Source: Sai Kiran Bali, Brand Ambassador)

Does this sound like customers who are getting to try new hosting features? He's responsible for working as a team with other brand ambassadors (and Hostinger staff?). The growth of our company. Doesn't sound like a customer at all, smells like employee. Our friend Christopher Khawand also started a github repo called hostinger-ba-dashboard. Why these guys are listing it as a job on LinkedIn, Facebook and resumes? Why are they building software for Hostinger? Who is team drago? Why is Christopher also posting reviews on HostingFacts, TBWHS, whoishostingthis, their own review site and more? Does Mumbere Ausbel post more than a russian troll factory?

#Banned

Hostinger was banned from the WordPress hosting group on facebook for their repeated and calculated deception of an entire community. Good riddance.

Epilogue

I thought this saga was done. Arnas Stuopelis said the brand ambassador program was shut down. Why would should anyone believe this liar?

Guess who I found on Quora (posting as recently as July 20, 2018)? Guess you missed that I dig up web hosting spam networks on Quora too.

Source: Mumbere AusbelAditya Bhavsar

So much for actually shutting down your program, these 'brand ambassadors' (spammers, shills), are back at it in coordinated fashion.

 

List of Known Hostinger Brand Ambassadors (6/32?)

Mumbere Ausbel

Aditya Bhavsar

Christopher Khawand

Pranshu Maheshwari

Mit Rao

Sai Kiran Bali

Conclusion

My Hostinger Review: avoid with a 100 foot pole. It's hard to in conscience believe a company so intent on lying to people is a good company by any definition of the word.  Their CEO is happy to lie to people's faces about facts. His employees are happy to do the same. They spend a lot of time coming up with ways to manipulate communities into believing they are good by astroturfing (brand spamdassadors). Hostinger is a company anyone with a sense of ethics should steer clear of, 0 stars.

Hostinger’s Fake Reviews – A Guide on How NOT to Promote Your Company

Update: Part 2 Here. Arnas Stuopelis defends Hostinger's Trust Pilot Reviews and uses 'brand ambassadors' to manipulate communities.

It started with a seemingly innocuous comment responding to someone looking for a hosting recommendation.

So what's wrong here? Let's take a look at all those likes.

So the CEO, Head of Acquisition, former Customer Success Manager (and now running a review site promoting Hostinger), Head of Customer Service and Customer Success Specialist from the company all liked this status posted by a Junior Software Engineer at Hostinger. The followup comment by the Head of Acquisition, which links to their good reviews on TrustPilot, is also liked by the CEO and the Junior Software Engineer.

This seems a bit manipulative in a post asking for recommendations to have your employees all commenting/liking yourselves to give a false sense of popularity.

But how did we get here?

So a huge influx of Hostinger employees all showed up to participate in a poll asking which company was the community's favorite (hint: they voted for themselves). So their entire presence in this community was started because they wanted to manipulate a community vote to give themselves a false sense of popularity. Their manipulation got them a nice 4th place out of ~65 companies. Technically there wasn't a rule against voting for yourself and I'm sure other representatives from companies voted for themselves too, but not in such a massive group that the admins were commenting on it. But this adds context to why all these employees joined the community with regards to timing.

So what's the big deal?

Some of their employees are pretending to be customers and offering unsubstantiated (and clearly biased) comparisons against their competitors.

 

"Hey, checkout our TrustPilot score!" or "Look at this review comparing us to the heavyweights in the industry!"

At least there is a disclosure from this employee that he works there.

Problem is that the review is published by themselves (always a good comparison source). They also like to use TrustPilot again and pick negative reviews about their competitors. They like comparing themselves to SiteGround.

So they pick a negative review for SiteGround (and HostGator) and a positive review for themselves to highlight how the 'real users speak for themselves.' Except when you look at the overall score, SiteGround scores a 9.6/10 on TrustPilot versus Hostinger's 9.3/10. They probably don't want you to know that though. It doesn't fit the narrative when you actually have worse reviews than your competitor on your darling review site.

Hostinger is so focused on TrustPilot and how "real users" and "customer replies cannot lie."

Are you ready for the surprise?

So who is posting these glowing reviews about Hostinger on TrustPilot? It's none other than.... drumroll please.... themselves!

But wait, there's more!

 

So that glowing Trust Pilot score they are using to advertise their own service? Fake and manipulated. I guess their 'customers' (also known as their staff) can lie.

As a further bonus, as I was working on this article I was contacted by Paulius Zemaitis. The name might look familiar from the top of this article where he was liking their statuses. He used to work for Hostinger as a Customer Success Manager for nearly 4 years. Now he runs a review site called Hosting Review where you will be shocked to know he has ranked Hostinger as the #1 host. He was kind enough to try to buy sponsored content on Review Signal to promote his reviews. And when I called into question his integrity ranking his former employer as the best, he wrote "What kind of reviewer would I be if I placed Hostinger lower when it's cheaper, faster and more reliable than other hosts?"

000webhost is another brand owned/operated by Hostinger.

So I pointed out it's hard to trust anyone who pretends to be a customer of his own company and writes reviews for them while an employee there. I wondered if that posed any problems for him. He never responded.

Conclusion

Instead of behaving like an ethical company, they simply manipulated a community, a review site and a former employee created another review site which promotes them.

Whether they are technically competent is still unknown, but it's hard to think we as a community should be rewarding this type of behavior. It's beyond simply being overly self promotional, it's a operating a campaign to deceive consumers. It's hard to want to ever trust a company that thinks that is ok, especially when the CEO is often one of those people commenting on Facebook.

Of course, they got called out right as I was publishing this and their official response is just priceless.

Instead of simply punishing Hostinger for their bad behavior, I wanted to create something good as a result of this investigation. I reached out to a lot of thought leaders in the community to talk about the proper way for companies to engage with communities. 

A Guide to Community Participation for Web Hosting Companies and Employees.

Update

Their CEO, Arnas Stuopelis thinks this behavior is ok. Would rather Review Signal didn't exist to expose their bad behavior. Classy organization from the top down. By classy I mean fraudsters, obviously.

Uncovering the Rose Hosting Spam Network on Quora

Welcome back to Dirty, Slimy, Shady Secrets of the Web Hosting Review (Under) World - Episode 3! Read Episode 1 | Episode 2

Today's post features Rose Hosting. Who I refuse to link to because their whole business model seems to involve comment spamming this blog and other sources of information. What started with a simple spam comment sent me down a rabbit hole I wasn't prepared for and shed light on a fairly large spam operation that spanned multiple sites, but my primary focus became Quora with a secondary focus on the web hosting review sites also being manipulated.

Visualization of Rose Hosting Quora Spam Network. An interactive version is available at the end of the article.

The Beginning

It started with a simple spam comment.

fakereview1

The poster tries to compliment the post and then drops in a RoseHosting mention and praises it.

But wait, there's an IP address! Looks like they made a mistake this time.

oscarstanley-arin-ip

So Miami Cloud Hosting is who owns the IP space that this comment came from. Let's see what comes up when I ping rosehosting.com

rosehosting-ip-ping

If you go to that IP, rosehosting.com shows up. So it's correct. Also if you look at their DNS:

rosehosting-dns

So we're 12 IPs away on that A record. Let's check out that IP that actually responded on ARIN.

rosehosting-arin-ip

Bingo. Same Miami Cloud Hosting.

So fakeish looking name, an email with zero google search results and coming from the same IP space on a the cloud hosting provider that hosts RoseHosting. Pretty damning, but unsurprising to see some astroturfing, many of the bigger players just rely on affiliates to do it for them and look the other way.

But I'm not one to accept shitty behavior in this business and just look the other way.

Digging Deeper

Let's see how many more I can dig up. I recognize the Rose Hosting name and know they've spammed me in the past.

jean-debushy-comment mike-hidemyass-comment pablo-comment

mateo-comment

 

The pattern seems to be emails with nothing associated with them on google. There is a protected twitter account with the same username as Pablo, but that's about it.

Mike uses HideMyAss, a VPN service designed to hide identities. VPNs/anonymity have a lot of value, they also happen to be abused by spammers a lot. This pattern looks nefarious.

Jean's comment follows the original Oscar comment's template: compliment, rose host spam, compliment.

They all added in HTML with the rel="nofollow" because they probably realized Google can easily see comment spam and cracked down on it. Putting a nofollow link is supposed to preserve your SEO value by not associating it as a spam link (because it's telling Google not to follow it). Why are these supposed customers adding SEO tactics to their comments and trying to hide their identities?

The Boss Man

I also got this email from Bob, who I assume is the owner based on what's listed publicly and the interviews he's done on at least one other review site which I don't trust a bit, and won't link to either.

But it's all class, I want to get listed and pay a lot.

generous-affiliate-program-rosehosting

So at best they are a 'subtle' please promote me for money kind of web hosting company (which almost every host will do). At worst, they are comment spamming and potentially astroturfing/sockpuppeting web host.

Searching For More

I searched WebHostingTalk, the largest web hosting forum that has run forever and has over 9 million posts.

rosehosting-wht

Just about everyone is talked about here. They have a company account that constantly posts ads. But how is it that in 14 years there are only 2 reviews and most of the threads are asking 'who?' Yet somehow, my blog is getting hordes of accounts recommending them. Another red flag.

Did they learn their lesson on WHT when an account got questioned about sounding like a shill? So the largest forum with 9,000,000 posts has basically nothing about them.

I kept searching and stumbled upon this gem on Twitter

twitter-brandonhimpfen-rosehosting-comment-spam

twitter-brandonhimpfen-rosehosting-discussion

I sense a pattern. Those crazy customers of ours who link to git and tomcat installation tutorials. Carl had a bit of a spamming spree according to Google.

Let's keep digging.

Sockpuppets and Patterns

jeandebushy-reddit-comments

Looks like I found Jean Debushy!

jean-debushy-serchen-review

And again.

jean-debushy-itzgeek-comment-spam

And again. Deep linking their ubuntu VPS on an ubuntu tutorial too, nice SEO tactic.

jean-debushy-quora

It's not a good spam campaign without hitting Quora!

So this name exists solely to promote RoseHosting and it all seemed to happen in October 2015. That's suspicious to say the least.

At this point it became clear that the sockpuppeting is more organized than I originally thought.

Organized Sockpuppets

I started to search the other names I had been spammed from and easily found more bad behavior.

oscar-stanley-disqus

oscar-stanley-discovercloud

Oscar is alive and well it seems on Disqus. and DiscoverCloud.

The Smoking Gun

Quora was the gold mine for uncovering this spam network. Once I found a couple accounts on Quora, I could go through their history and see who upvoted their posts. It would be practical if you were running a spam network to have many accounts upvoting one another to give yourself more visibility. More upvotes, more traffic, easier for me to track it all down.

I discovered 51 accounts connected to RoseHosting and mapped out how they connected to one another. I took those same names and searched for their re-use across other sites. 10 showed up on Serchen, 3 on HostReview, 6 on DiscoverCloud, 6 on HostAdvice, 3 on TrustPilot, 1 on Reviews.co.uk - all industry review sites being manipulated by these same spam accounts. I also discovered 11 more accounts connected to various review sites and comment spam.

Rose Hosting Quora Spam Network

This graph charts the connections (upvotes) of RoseHosting associated Quora accounts. If you hover over a name it links to the Quora details and any other related content spamming like review sites.

Aftermath

I tried for months to reach out to Quora and have never heard a word from them. I did notice when I last checked (March 28, 2017) that at least some of the accounts have been banned. Maybe someone actually read my email and just didn't have the time to respond.

I have reached out to the web hosting review sites and will update as I hear back from them. The only company that did respond and acknowledged the issue was HostAdvice (not to be confused with HostingAdvice which steals Review Signal content to mislead its visitors).

Sources

Full Data Table Available on Google Docs

 

Bonus

Thanks RoseHosting for having the decency to make sure you spammed this article as well. I am guessing your spammers don't understand irony. Or possibly the English language.

A new comment on the post "Uncovering the Rose Hosting Spam Network on Quora" is waiting for your approval
https://reviewsignal.com/blog/2017/03/31/uncovering-the-rose-hosting-spam-network-on-quora/

Author: Merritt George (IP: 75.86.176.9, cpe-75-86-176-9.wi.res.rr.com)
Email: merritt.george@gmail.com
URL:
Comment:
That's a great article! There sure are interesting parts of web hosting that people don't know about.

So hey I wanted to know if you do reviews on new sites? I was looking around and noticed that my current webhost, <a href="https://www.rosehosting.com/" rel="nofollow">Rose Hosting</a> wasn't listed and that's a shame! In a sea of companies with no scruples, they've stood out to me as a solid company that doesn't resort to shady tactics, delivers quality support, and has great uptime.

Would love to see a benchmark!

 

Bonus: Fake Review Screenshots

carl-williams-serchen-review

 

donald-wilson-discovercloud

 

akila-hostadvice

wesley-hermans-host-advice

emre-hakan-review-discovercloud

pete-williams-serchen

gary-coleman-hostreview

jean-debushy-hostreview

 

dirk-vlaar-serchen

 

Endurance International Group 2016 Financials

Endurance International Group (NASDAQ: EIGI) published their 10-K on February 24, 2017.

As one of the biggest players in the space, I like to look through and see what's going on with them.

2016's biggest news for EIG was the acquisition of Constant Contact for 1.1 billion dollars. Their financials have been broken apart now between Web Presence (hosting, domains, etc) and Email (Constant Contact).

It was reinforced early that BlueHost and HostGator are their primary brands and they plan on pushing them with more brand advertising (tv, podcasts, etc). I wonder if we will see a BlueHost superbowl ad to compete with GoDaddy?

In 2015, our total subscriber base increased. In 2016, excluding the effect of acquisitions and adjustments, our total subscriber base was essentially flat, and in our web presence segment, ARPS decreased from $14.18 for 2015 to $13.65 for 2016. We expect that our total subscriber base will decrease in 2017. The factors contributing to our lack of growth in total subscribers and decrease in web presence segment ARPS during 2016 and our expected decrease in total subscribers during 2017 are discussed in “Item 7 -  Management’s Discussion and Analysis of Financial Condition and Results of Operations ”. If we are not successful in addressing these factors, including by improving subscriber satisfaction and retention, we may not be able to return to or maintain positive subscriber or revenue growth in the future, which could have a material adverse effect on our business and financial results.

Year Ended December 31,
2014
2015
2016
Consolidated metrics:
Total subscribers
4,087
4,669
5,371
Average subscribers
3,753
4,358
5,283
Average revenue per subscriber
$
13.98
$
14.18
$
17.53
Adjusted EBITDA
$
171,447
$
219,249
$
288,396
Web presence segment metrics:
Total subscribers
4,827
Average subscribers
4,789
Average revenue per subscriber
$
13.65
Adjusted EBITDA
$
172,135
Email marketing segment metrics:
Total subscribers
544
Average subscribers
494
Average revenue per subscriber
$
55.11
Adjusted EBITDA
$
116,26

 

Overall, it's probably not a good sign to see Average Revenue Per Subscriber going down on their hosting segment which was the core of the business. The Email segment is hiding/offsetting that a lot.

HostGator, iPage, Bluehost, and our site builder brand) showed positive net subscriber adds in the aggregate during 2016, but these positive net adds were outweighed by the negative impact of subscriber losses in non-strategic hosting brands, our cloud storage and backup solution, and discontinued gateway products such as our VPN product. We expect total subscribers to decrease overall and in our web presence segment during 2017, due primarily to the impact of subscriber churn in these non-strategic and discontinued brands. We expect total subscribers to remain flat to slightly down in our email marketing segment.

The future doesn't look good based on these statements. Decreasing ARPS and decreasing subscriber base seem like a recipe for decline. They don't seem to even expect growth in the email marketing segment. I'm really having a hard time seeing any positive outlook on this.

In 2017, we are focused on improving our product, customer support and user experience within our web presence segment in order to improve our levels of customer satisfaction and retention. If this initiative is not successful, and if we are unable to provide subscribers with quality service, this may result in subscriber dissatisfaction, billing disputes and litigation, higher subscriber churn, lower than expected renewal rates and impairments to our efforts to sell additional products and services to our subscribers, and we could face damage to our reputation, claims of loss, negative publicity or social media attention, decreased overall demand for our solutions and loss of revenue, any of which could have a negative effect on our business, financial condition and operating results.
Our planned transfer of our Bluehost customer support operations to our Tempe, Arizona customer support facility presents a risk to our customer satisfaction and retention efforts in 2017. Although we believe that the move to Tempe will ultimately result in better customer support, the transition may have the opposite effect in the short term. We expect that the transition will take place in stages through the fourth quarter of 2017, and until the transition is complete, we may continue to handle some support calls from our current Orem, Utah customer support center. The morale of our customer support agents in Orem may be low due to the pending closure of the Orem office, and agents may decide to leave for other opportunities sooner than their scheduled departure dates. Either or both of these factors could result in a negative impact on Bluehost customer support, which could lead to subscriber cancellations and harm to our reputation, and generally impede our efforts to improve customer satisfaction and retention in the short term. In addition, we are consolidating our Austin, Texas support operation into our Houston, Texas support center, which could also negatively impact customer support provided from those locations during the transition period.

The story about BlueHost getting rid of hundreds of jobs in Orem was widely talked about. It also came up that A Small Orange was getting some of the same treatment. That would be in line with getting rid of Austin where ASO was based. It's interesting to see EIG selling this as a 'long term' move, unless it's entirely a financial one to reduce costs. I've yet to track a single EIG brand substantially increase its rating, but it has destroyed plenty of them (The Rise and Fall of A Small Orange or The Sinking of Site5). These companies they acquired often had much better ratings and knew how to provide customer support.

I did find one interesting bit in the contract with Tregaron India Holdings (Operating as GLOWTOUCH or Daya), the line item for "New hire and ongoing training for all support positions." It makes it sound like this third party company is responsible for training all EIG support staff, along with many other things like migrations. Which have been absolutely disastrous and how Arvixe ended up as one of Review Signal's lowest rated brands which was done by this group.

But who are Tregaron?

The Company has contracts with Tregaron India Holdings, LLC and its affiliates, including Diya Systems (Mangalore) Private Limited, Glowtouch Technologies Pvt. Ltd. and Touchweb Designs, LLC, (collectively, “Tregaron”), for outsourced services, including email- and chat-based customer and technical support, network monitoring, engineering and development support, web design and web building services, and an office space lease. These entities are owned directly or indirectly by family members of the Company’s chief executive officer, who is also a director and stockholder of the Company.

In 2016 EIG spent $14,300,000 with Tregaron. And it wasn't the only business connected to the CEO.

The Company also has agreements with Innovative Business Services, LLC (“IBS”), which provides multi-layered third-party security applications that are sold by the Company. IBS is indirectly majority owned by the Company’s chief executive officer and a director of the Company, each of whom are also stockholders of the Company. During the year ended December 31, 2014, the Company’s principal agreement with this entity was amended which resulted in the accounting treatment of expenses being recorded against revenue.

Another $5,100,000 for this particular company.

So how bad were those migrations?

A key purpose of many of our smaller acquisitions, typically acquisitions of small hosting companies, has been to achieve subscriber growth, cost synergies and economies of scale by migrating customers of these companies to our platform. However, for several of our most recent acquisitions of this type, migrations to our platform have taken longer and been more disruptive to subscribers than we anticipated. If we are unable to improve upon our recent migration efforts and continue to experience unanticipated delays and subscriber disruption from migrations, we may not be able to achieve the expected benefits from these types of acquisitions.

Understatement at its finest.

Overall, things look pretty glum at EIG, which was trading at over $9 on the day this came out and is now under $8/share.

I generally try to keep my opinions fairly limited, but some things need to be called out for the good of consumers. EIG has acquired a lot of talented people and managed to squander them repeatedly. I'm not sure why the company seems to be toxic towards retaining good talent. When EIG are writing statements about trying to improve customer service and have acquired some of the highest rated brands (A Small Orange) Review Signal tracks, and then dismantles them it creates a cognitive dissonance.

Perhaps EIG needs to get rid of the top management. The incestuous relationships between the contracted companies and the CEO are create some questionable incentives. Combined with the objectively poor results from those companies on things like migrations, it seems inexcusable. I'm not optimistic about anything EIG are doing and feel bad for some of the exceptional people I know that still work there.

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