Tag Archives: EIG

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.

The Sinking of Site5 – Tracking EIG Brands Post Acquisition

"You'll notice their ratings, in general, are not very good with Site5 (their most recent acquisition) being the exception. iPage was acquired before I started tracking data. BlueHost/HostMonster also had a decline, although the data doesn't start pre-acquisition. JustHost collapses post acquisition. NetFirms has remained consistently mediocre. HostGator collapses with a major outage a year after acquisition. Arvixe collapses a year after being acquired. Site5 is still very recent and hasn't shown any signs of decline yet." - The Rise and Fall of A Small Orange, January 2016

Review Signal Rating Calculated Pos/(Pos+Neg), without duplicate filtering

Review Signal Rating Calculated Pos/(Pos+Neg), without duplicate filtering (January 2016)

That's what I wrote at the beginning of 2016 as I watched A Small Orange's rating collapse in a pretty popular post called The Rise and Fall of A Small Orange, which documented ASO's Rise and Fall, but also the fall of many EIG brands. One thing I mentioned was the recent acquisition of Site5 (and Verio) which had a fairly good rating on Review Signal at the time of acquisition. The trend seemed to be roughly a year to see the drop in rating, post acquisition.

Site5 ~ 1 Year Later

The acquisition of Site5 was announced August 2015. Here's the updated EIG brand tracking graph. One thing to note, this now uses the new rating algorithm which has a built in decay function to weight older reviews less. So the new graph uses the new algorithm but calculating each point in time as if it always used it. There will be some differences between it and the original graph (which prompted the change in algorithm). It's minimal for most brands, only when there is a major change in sentiment, it shows a change more quickly. Full details about the change can be read on Review Signal Ranking Algorithm Update.

eig_brand_review_signal_ratings_2016

What you can see is the reputation remained relatively stable until about April 2016 and then started a slow but steady decline where it has dipped below 50% for the first time recently. As with nearly every brand, except A Small Orange, the decline happened within a year.

Since the original post there also hasn't been much movement in any other brands beyond Site5 crashing and A Small Orange continuing to slide downward. Verio didn't see a dip post-acquisition, but it had a pretty low rating to start with that put it in the bottom half of EIG brand ratings already.

Why Do EIG Brands Go Down Post Acquisition?

The longer I am in this industry, the more stories I hear. A Small Orange was such an interesting exception and I've heard a lot about it from a lot of people. It's relative independence and keeping the staff seemed to be the key to maintaining a good brand even within the EIG conglomerate.

Site5 offers what I imagine is more business-as-usual in the EIG world. Cut staff, migrate to EIG  and maximize profit (in the short term). Site5's founder, Ben, reached out to a competitor, SiteGround, and arranged for them to hire a large number of Site5 staff that EIG had no plans on keeping according to SiteGround's blog. A very classy move from the former CEO and a seeming win for SiteGround, one of EIG's larger hosting competitors. I also saw similar behavior of long time staff all leaving when A Small Orange started to go downhill and staff from other EIG brands showed up.

Beyond simply trying to cut costs, you have to wonder why would you spend all that money acquiring these brands that have lots of customers, good reputations and talented staff that obviously are keeping the operation running successfully only to get rid of nearly all of that except the customers. But once you gut the staff, it seems like the customers notice, because it certainly shows up in the data I track.

Conveniently, EIG just published their Q3 2016 10-Q.

We have certain hosting and other brands to which we no longer allocate significant marketing or other funds. These brands generally have healthy free cash flow, but we do not consider them strategic or growth priorities. Subscriber counts for these non-strategic brands are decreasing. While our more strategic brands, in the aggregate, showed net subscriber adds during the quarter ended September 30, 2016, the net subscriber losses in non-strategic brands and certain gateway brands contributed to a decrease in our total subscribers of approximately 42,000 during the quarter. We expect that total subscribers will continue to decrease in the near term.

Overall, our core hosting and web presence business showed relatively slow revenue and subscriber growth during the first nine months of 2016. We believe that this is due to flat marketing expenditures relative to 2015 levels on this business in the first half of 2016 as a result of our focus on gateway products during that period, and to trends in the competitive landscape, including greater competition for referral sources and an increasing trend among consumers to search for web presence and marketing solutions using brand-related search terms rather than generic search terms such as “shared hosting” or “website builder”. We believe this trend assists competitors who have focused more heavily than we have on building consumer awareness of their brand, and that it has made it more challenging and more expensive for us to attract new subscribers. In order to address this trend, during the third quarter of 2016, we began to allocate additional marketing investment to a subset of our hosting brands, including our largest brands, Bluehost.com, HostGator and iPage. We plan to continue this increased level of marketing investment in the near term, and are evaluating different marketing strategies aimed at increasing brand awareness.

So the result of their current strategy this past quarter has been a net loss of 42,000 customers. They say their strategic brands on aggregate had a net subscriber increase and named the largest ones (BlueHost, HostGator, iPage) and they are going to focus on a subset of brands going forward. But the phrasing would seem to imply that some of the strategic brands experienced losses as well. It also means that the non-strategic brands lost more than 42,000 customers and pulled down the net subscribers to -42,000 customers last quarter.

The cap it all off, I got one of the most surprising emails from Site5 a couple days ago.

We wanted to let you know that we’ve decided to terminate the Site5 Affiliate program as of November 30th, 2016.

We want to thank you for your support of Site5, especially during our most recent move into Impact Radius, and we hope that you’ll consider promoting another one of Endurance’s other programs.

I guess Site5 isn't being considered a strategic brand if they are killing off the affiliate channel on it entirely, right after a big migration from Site5's custom affiliate program to Impact Radius. They also asked that affiliates promote HostGator now, which certainly fits in the strategic brand category.

It's extremely disappointing to see this trend continue of brands collapsing after a year in EIG's hands. What will be interesting going forward is that EIG hasn't acquired any new hosting brands for a while. They seem to be focused on their existing brands for now. I wonder if that will mean we will see any noticeable positive change or improvements in existing brands (or at least some of the strategic brands).

LiquidWeb and HostDime no longer providing Shared Hosting

I've updated the site today to reflect that LiquidWeb and HostDime no longer provide shared hosting.

It leaves quite a large gap between SiteGround (72%) and pretty much everyone else still in the shared hosting space (<60%).

I do wonder if this is a bellwether for shared hosting becoming a thing of the past. There are still millions of people on it and in all likelihood will continue to be. But we've seen the rise of all sorts of specialty hosting which is likely eating up a lot of the market. The rise of developer oriented providers like Amazon, Azure, Digital Ocean have opened up the floodgates for building services on top of them. We've seen numerous companies built on top of these companies and targeting niches, especially WordPress like FlyWheel, Pagely. We've even seen configurable providers like CloudWays which lets you select the cloud provider of your choice and install and manage your websites on them.

These new hosting providers are charging more and giving different experiences to users. Developers have flocked to them and are building the next generation of web hosting services. High quality companies seem to be moving up market, charging more and providing more where I'm guessing the margins are substantially better than in the shared hosting space unless you're trying to upsell everything.

It will be interesting to to follow, will we continue to see more consolidation ala EIG and GoDaddy? Is there room for another great shared hosting provider that grows very large? Or will shared hosting slowly fade away as superior technologies (VPS) and specialized companies eat away at it providing the specific services people really want. We've also seen non-webhosts like SquareSpace, Wix and Weebly gain large market shares. On the BuiltWith estimates ranging from 880,000-1.6m websites for each of them.

The one trend I am not a fan of is that there are fewer and fewer really good choices in the shared hosting space that are of significant scale.

WordPress.org Hosting Recommendations Listing Criteria

UPDATE (5/13/2016 7:05 PM): Official comment from Matt Mullenweg was posted. Quoted below, click or scroll to the comment section to see the original.

“I would like to see some transparency in the process”

As stated on the page, the listing is completely arbitrary. The process was: There was a survey, four applicants were chosen, and the page was updated. That might repeat later in the year, or the process might change.

“how criteria are weighted”

There is no criteria or weighting. It ultimately is one person’s opinion. Information that is important is reflected in the questions asked in the survey, but that is not everything that is taken into account. (I have looked at this site in the past, for example.)

“who is making the decisions”

I am. James helped in sorting through the many submissions that came in, doing additional research, and digging on finalists, but ultimately the decision was mine. You can and should blame me fully for any issues you have with it. I appreciate James’ help in this go-round, but he will not be involved at all with any future updates. (So, please leave him alone.)

“how much money is involved”

There was no money involved. Obviously being listed on the page is hugely valuable and impacts the listed (or unlisted) businesses a great deal. This is why I take full responsibility for the listing, now and in the future — I have been fortunate to be extraordinarily successful and no financial or business consideration any of the applicants could offer matters to me. A host could offer $100,000,000 to be listed on the page for 1 day, and I would say no.

-Matt Mullenweg

Yesterday, I posted WordPress.org Updates Hosting Recommendations, Nobody Knows Selection Criteria. Which naturally meant I was going to find out as much as I could about the process, because it's a big deal and my mission here at Review Signal is honest and transparent web hosting reviews.

I confirmed with multiple sources that the newly listed companies didn't pay any money to get listed. Everyone seems to have filled out the form and then heard nothing back until the updated page was published yesterday. Both the winners (BlueHost [Reviews], DreamHost [Reviews], FlyWheel [Reviews], SiteGround [Reviews]) and losers (everyone else) seemed to agree on this process based on everyone I talked to.

Great. The application process seems fair.

But the selection process is still a black box, with help from people who follow WordPress more closely than myself, I found James Huff (macmanx) a 12 year volunteer and 5 year employee at Automattic who was directly involved with the new WP.org hosting recommendations.

James_huff1

I didn't hide who I was or my interest. The most concerning part of this exchange was that 'Absolutely no money changed hands, unless you consider sponsorship of WordCamps as monetary with regards to the "contributions to WordPress.org."'

No money changed hands except a lot of sponsorship dollars to the organization. Guess who the top global gold community sponsors are? BlueHost (and JetPack/WooCommerce, both owned by Automattic). Somehow BlueHost are also a Silver sponsor too, along with GoDaddy. BlueHost is pouring a lot of money into WordCamps/WordPress.org Foundation.

I'm sorry, but I do consider that money changing hands. They are giving a large sum of money - it's material enough to mention in their SEC filings.

James_huff2

We're still going to have to agree to disagree about what money changing hands means. But he says it was fair. But fair is pretty meaningless when we don't really have any insight into what standard of fairness is the goal. How is each criteria being weighed and evaluated. But this is the list of hosts that they can confidently tell everyone are good.

I'm not sold.

James_huff3

Historical perception seems to be the proxy for what marketers might call Net Promoter Score (NPS). How much do consumers like/recommend something. That's essentially what I measure here at Review Signal and my data has been incredibly close to what company's internal data shows (LiquidWeb NPS Scores vs LiquidWeb Review Signal Rating).

It is arguably the most important factor of recommendations and for service businesses, it's about the best metric for all encompassing quality available.

But it's only part of the criteria and that's fair. But should there be some minimum threshold? Can a company score a zero in quality and high in everything else be worthy of a listing? BlueHost's rating is 41%. That means roughly 6/10 people don't recommend it or have anything good to say about them.

There are WordCamp sponsors that didn't make the cut. Of the global community sponsors 2/3 hosting companies did though, BlueHost and DreamHost, while one didn't, GoDaddy. But the largest sponsor made it and is at the top and it's still BlueHost.

But moving on, James mentioned Automattic has no play in the process, but he does wear multiple hats. Which means he is aware of the potential perception of conflict of interest.

James_huff4

Finally, a mention of Matt. Important again when thinking about the context for potential conflicts of interest. I outline what would happen in a dream world and what's realistic. I think honest disclosure and basic transparency is perfectly realistic. It's ok to make money, just be clear about where it's coming from. A standard I try to uphold here at Review Signal, see how we make money and read the entire process for how our rankings are calculated. See? It's not hard and I still make money giving the best information available.

James_huff5

AWP comments

That is the comment thread I referenced. Not a single person said anything positive about BlueHost and the assumption is they just paid for it. BlueHost being listed ruins the credibility of the recommendations when there is no transparency about what criteria was being used.

James_huff6

Moving on, the survey itself has issues which I brought up before. It's asking for sensitive company information and being handled by employees of a company that owns two competitors in the space (WP.com VIP, Pressable), took $15 million in investment from another (BlueHost), and is an investor in a fourth competitor (WP Engine).

That seems like a huge potential conflict of interest and I know it dissuaded at least one company from even applying.

James_huff7

james huff 3 tweets

It didn't end on the nicest note, I don't think James took my criticisms well. From his original messages, I think he knows and understands the perception of conflicts of interest but admitting them in this context puts him in a very awkward position that I don't envy. He wears multiple hats and surely wants to wear them all fairly. I would say admitting that those multiple hats has the potential for conflicts of interest isn't a weakness of character, it's an admission of humanity. I'm sure James is a great guy and has done a lot of good things for the community. But I think people who can be perceived with a strong potential for conflict of interest, which anyone connected to Automattic in this situation would have, shouldn't be managing this particular process.

I truly don't have any ill will towards James personally or Automattic. Even BlueHost/EIG, I've been more than willing to give them the benefit of the doubt and continue to hope that they will be better (ASO did break my heart a bit, I thought they were turning EIG around). My data continues to show them being mediocre and a seeming touch of death in terms of quality (their strategy does seem to be cost cutting and economies of scale). But I don't fault them for their behavior, I expect it, it's well published in their SEC filings.

Conclusion

I still think WordPress.org can do better with its hosting recommendations and I'm not going to stop advocating for them until they are better. I would like to see some transparency in the process, how criteria are weighted, who is making the decisions and how much money is involved. I think the companies that applied would appreciate feedback about why they weren't selected, what makes them different and fall short of the companies that do make the cut. Or just call them Ads / Sponsors. Don't say they are the best and brightest and endorse them. Say, we took money and this guy paid us the most. At least we meet the minimum threshold of honesty and transparency.

 

References

For posterity, the logs in their entirety are available below. It's long, so I tried to cut down some stuff to get to the most important bits. But I don't want to hide anything.

Direct Message Archive macmanx Making WordPress Slack Direct Message Archive macmanx Making WordPress Slack2

Endurance International Group Acquires IX Web Hosting

Some tidbits from EIG's most recent earnings call (source).

...we acquired the assets of IX Web Hosting for a total consideration of $28 million.

EIG also talks a lot about Constant Contact acquisition which seems like it's about to be gutted personnel wise.

Importantly, as part of this acquisition, we believe we have the opportunity to reduce cost and better balance top line and investment in order to drive accretive EBITDA and future cash flows. Our plan for the reduction in cost was based primarily on head count reductions, which accounts for $48 million of the $55 million in targeted annual run rate synergies. With the head count reductions last week, we eliminated approximately $30 million in annual run rate costs. We intend to continue to balance costs and investments appropriately across our brands in order to continue to leverage our scale.

And they also are saying to expect less M&A in the next couple years.

Brian L. Essex - Morgan Stanley & Co. LLC

Good morning, and thank you for taking the question. Marc a question for you. I guess with the combination of Constant Contact, given the profile that you just kind of highlighted with the reduction in debt target by the end of fiscal 2017, with the addition of Constant Contact to the platform as well, how might your M&A appetite change versus how Endurance has run its acquisition strategy historically? What will you be focusing on? And will you be perhaps taking a pause from M&A or managing it a little bit differently? Maybe a little bit of color there would help.

Hari K. Ravichandran - President, Chief Executive Officer & Director

Sure. This is Hari. So, from an M&A standpoint, obviously we've just completed this sizeable transaction. It's a big team. We have a lot of work still in front of us cut out for getting the integration done, realizing the synergies and the costs on the revenue side. Our bar for M&A is probably significantly higher than it ever has been in the past. We've always been very judicious about capital deployment and looking at return on invested capital, IRRs, and present value of acquisitions as we have done them in the past.

But given the fact that there is significant opportunity within our current asset base, and given the opportunities for further refining those, I would say over the next four to six quarters, from an M&A standpoint, the bar is quite a bit higher, with the focus more on debt pay down for the business to get the leverage down as Marc noted in his remarks.

Review Signal’s Best Web Hosting Companies in 2015

Another year, another mountain of data added to the largest web hosting review site. This year we added over 49,000 new reviews (a slight increase from the 45,000 last year). We added two new companies in Arvixe and Site5, both of which are now owned by EIG. We published our first WordPress Plugin WPPerformanceTester. WPPerformanceTester was built for our WordPress Hosting Performance Benchmarks which we performed yet again with our largest batch of companies ever. We even got some outside validation from LiquidWeb which published its internal NPS benchmarks which matched very closely to their Review Signal Rating.

But the year ended on a somewhat sour note with The Rise and Fall of A Small Orange. It tells the story of ASO and how they've played such a huge role on this site. Including winning at least one of these awards every year since inception. But not anymore. So without further ado...

Best Shared Web Host: LiquidWeb [Reviews]

2015-best-shared-hosting-liquidweb

 

Best Web Hosting Support: SiteGround [Reviews]

2015-best-hosting-support-siteground

 

Best Specialty Web Hosting: FlyWheel [Reviews]

2014-best-specialty-flywheel

Best Unmanaged VPS: Digital Ocean [Reviews]

2014-best-unmanaged-vps-digitalocean

Best Managed VPS: LiquidWeb [Reviews]

2015-best-managed-vps-liquidweb

 

For the second year in a row FlyWheel [Reviews] has set the bar in terms of how high a company's rating can be. They won the best specialty web hosting award with their managed WordPress hosting.

For the first time ever someone besides A Small Orange [Reviews] has won the best shared web hosting. A huge congratulations to LiquidWeb [Reviews]! They also managed to pickup the Best Managed VPS hosting award.

Digital Ocean [Reviews] continues its massive growth and popularity, they have won the Best Unmanaged VPS provider for the third year in a row.

Finally, SiteGround [Reviews] returned to our awards and won Best Web Hosting Support, an honor they last received in 2013.

The Rise and Fall of A Small Orange

If you're an unhappy A Small Orange customer looking to find a better web host and don't want to read why the quality went down, simply head over to our Web Hosting Reviews and find a better hosting company. 

How did a small web hosting company have such a huge impact on Review Signal?

The Early Days

This story begins in October 2011, a year before Review Signal launched. Review Signal had been collecting data for months and early ratings data was starting to become meaningful. A tiny company was at the top of the rankings. A Small Orange.

The most worrisome part of this revelation was that A Small Orange did not have an affiliate program. Which isn't a requirement at all for a listing on Review Signal.

However, after investing years of work, if the top rated company ended up not having an affiliate program, the business was likely sunk before it even started. So I inquired early and heard back from the CEO at the time, “we don't have an affiliate program and at the moment, we have no plans for one.” This was a potential death knell because the entire business model relies on making at least some money, even though I assumed it would be much lower than my competitors who simply sell their rankings to the highest bidder. But as any entrepreneur knows, almost everything is negotiable if you understand what the other person really wants and why. After talking further with the CEO, he explained his issue with web hosting review websites, “they typically have a pay for ranking sort of model and do it either through set rates or affiliate payouts. It varies. The economics at ASO don't really work out for a standard affiliate program.” A Small Orange didn't want to play the game that every other review site out there did. Pay to play, quality be damned.

This CEO hated the games being played as much as I did.

That was all the opportunity I needed. Review Signal's mission has been to fight against that very same model and I knew I had an early ally who could make this work. We ended up working out a deal to pay three months of whatever plan someone purchased and he put a cap on my potential earnings at $250 before he would review the performance. Considering the most popular plans were $25/year and $5/month, this wasn't going to earn a lot, but at least it might start covering some of the very basic costs. The first month I earned $52.38 on 6 sales for an average of $8.73 per sale with A Small Orange.
At least it was something. And a foot in the door was all I needed to prove this crazy idea called Review Signal might have some legs. A Small Orange opened that door and for that our histories will forever be intertwined.

The Good Times

The next few years were very good. I was their first affiliate. I was their biggest affiliate for many years, bringing in over a thousand new customers. I got to know many of the staff and would consider some of them friends. And A Small Orange continued to be the best rated shared hosting company through 2014. Everyone was happy - their customers, the company and Review Signal. I was happy to recommend them based on the data showing they had incredibly satisfied customers. I had people tell me personally they were very happy with them after signing up because of the data I publish here at Review Signal.

2014-01-20 13.34.07

Free Swag and Annual Thank You Card from ASO

The EIG Acquisition

A Small Orange was quietly acquired in 2012. They were acquired by a behemoth in the hosting industry called Endurance International Group (NASDAQ: EIGI) which owns dozens of brands including some of the largest and most well known hosting companies: Blue Host, Host Gator, Host Monster, Just Host, Site5, iPage, Arvixe and more.

EIG has a very bad reputation in the web hosting world. If you ask most industry veterans they will tell you to run to the hills when it comes to EIG. The oft-repeated story is EIG acquires a hosting company, migrates them to their platform and the quality of service falls off a cliff. The best example of this is perhaps their migration to their Provo, UT data-center which had a catastrophic outage in 2013. This outage was huge. The impact dropped four of EIG's largest brands many percentage points in the Review Signal rankings in a single day.  But these major outages continue to happen as recently as November 2015.

In a recent earnings call with share holders, EIG CEO Hari Ravichandran talked about two recent acquisitions and their plans for them. “We expect to manage these businesses at breakeven to marginally profitable for the rest of the year as we migrate their subscriber bases onto our back-end platform. Once on platform, we expect to reach favorable economics and adjusted EBITDA contribution consistent with our previous framework for realizing synergies from acquisitions.”

The EIG Playbook

EIG's playbook has been to acquire web hosting brands, migrate them to their platform and 'reach favorable economics.' They've been doing it for years and it seems to be working well enough for investors to continue to put money into the company. M&A to grow subscriber bases and economies of scale to lower costs. It's a very simple and straightforward business plan. It doesn't speak to anything beyond spreadsheet math though, such as brand value and customer loyalty. And those are certainly lowered and lost post-EIG acquisition according to all the data we've collected over years and multiple acquired brands. It's calloused business accounting, but it makes perfect sense in the race to the bottom industry that is commodity shared hosting.

Review Signal Rating Calculated Pos/(Pos+Neg), without duplicate filtering

Review Signal Rating Calculated Pos/(Pos+Neg), without duplicate filtering

You can see all the EIG brands tracked here on Review Signal in the chart above and their acquisition dates below:

iPage - 2009. BlueHost/HostMonster - 2010. JustHost - Feb 2011. NetFirms - March 2011. HostGator - June 2012. A Small Orange  - July 2012. Arvixe - November 2014. Site5 - August 2015.

You'll notice their ratings, in general, are not very good with Site5 (their most recent acquisition) being the exception. iPage was acquired before I started tracking data. BlueHost/HostMonster also had a decline, although the data doesn't start pre-acquisition. JustHost collapses post acquisition. NetFirms has remained consistently mediocre. HostGator collapses with a major outage a year after acquisition. Arvixe collapses a year after being acquired. Site5 is still very recent and hasn't shown any signs of decline yet.

The Expected Decline of A Small Orange

So nearly every industry veteran I talked to expected A Small Orange to collapse. Immediately after acquisition. Except me. I was, am and will continue to be willing to give the benefit of the doubt to a company until I am shown evidence.

For years, post acquisition people were saying ASO's demise was right around the corner. For years, I still waited for that evidence and the prophecy to become true. But it didn't happen.

It often took EIG less than a year to ruin a brand. We don't have to look further than Arvixe for an example of this, which was acquired in November 2014. Today, Arvixe has one of the lowest ratings of any company on Review Signal at a shockingly low 27%.

But A Small Orange continued to chug along. It didn't hear the naysayers or believe itself to be a victim of the EIG curse. Instead, ASO was the best shared host for years post-acquisition. It seemed to have a fair level of autonomy from the EIG conglomerate. The staff I knew there, remained there, and all indications showed they were still the same company.

Until it wasn't.

The Fall of A Small Orange

A Small Orange Historical Rating

A Small Orange Historical Rating

The chart above shows Review Signal's rating of A Small Orange. The Blue line is the rating as calculated by [Positive Reviews / (Positive Reviews + Negative Reviews)]. The Red line only calculates the rating from the past 12 months of data. It's slightly different than Review Signal's actual calculation because I am not filtering out duplicates for quick analysis. The difference for A Small Orange is that when you remove the duplicates, the year 2015 had a 43% rating indicating there was quite a few people writing multiple negative things about A Small Orange.

Sometime in 2015, the A Small Orange that thousands of people trusted and raved about became another EIG brand. I tried to get the inside story. I reached out to the former CEO who sold the company to EIG and became an executive there for a couple years post acquisition. He reached out on my behalf to EIG's PR team to see if they would participate in this story. Both declined to participate.

So, I'm left to speculate on what happened at A Small Orange based on what's been publicly stated by their CEO and watching their strategy unfold for years across many companies/brands. My best guess is EIG finally got involved with A Small Orange. They used to be a distributed/remote team, now all positions they are hiring for are listed as in Texas (their headquarters). I saw a HostGator representative get moved over to ASO's team, so the internal staff was changing and people were being moved from brands with less than stellar reputations to ASO. The former CEO left mid-2014, which likely left a leadership and responsibility gap. ASO could probably run on auto pilot through the end of 2014, but over time having no champion for your brand in upper management eventually will come back to hurt the brand when decisions get made based on simple economics.

Once 2015 rolled around, the service had noticeably declined. The overall rating for A Small Orange in 2015 was 43% (only using 2015 data). For years, they had been in the 70's. It also ended the year with a massive outage for most, if not all, of their VPS customers which has been going on since Christmas. I personally received multiple messages from users of this site asking about what was happening and alerting me to this decline in service quality.

ASO was also responsible for the Arvixe migration that went very poorly and caused the Arvixe brand to tank. I'm not sure why EIG doesn't have a dedicated migration team to handle these type of moves considering how many acquisitions they go through and how large a role it plays in their growth strategy. But that's a whole separate issue.
It's with great disappointment that I have to admit, the A Small Orange that played such a huge role in the founding and success of Review Signal and provided a great service to many thousands of customers is dead. It's become another hollow EIG brand where the quality has gone down to mediocre levels. And that seems perfectly ok to them, because it's probably more profitable for their bottom line.

Going Forward

This story has had a profound impact on Review Signal. One thing that it made painfully obvious is that the ranking algorithm needs its first update since inception. The current ranking treats every review equally. Which was great when this site launched, because time didn't have any opportunity to be a factor yet. But as this site continues to move forward, I need to acknowledge that a significant amount of time has passed since launch and today. A review from the beginning of Review Signal isn't as relevant as one from this past week in determining the current quality of a web hosting company. A Small Orange right now shows up around 64% which is artificially high because of their long history of good service and it hasn't been brought down yet by the marginally small (by time scale) decline of the past year. But it's painfully clear that it's not a 64% rating company anymore.

Another thing to note is the graphs here all used a simpler calculation [Pos / (Pos + Neg)] to calculate rating without duplicate filtering. What this means is the difference between the rating here and the actual rating on the live site is a measure of the degree people are being positive or negative about a company. If the rating here is higher than the published, it means people are saying on average, more than one good thing about the same company. If the rating is below (as is in most if not all cases here), it means people are are saying more than one negative thing about the company. I'm not sure if this will factor into a new algorithm, but it is something to consider. My intuition says you would see it hinge around 50%, those companies above would likely have more positive supporters, and those below would have detractors.

In the coming months I will try to figure out a better way to generate the ranking number that more fairly represents the current state of a company. My initial thought is to use some sort of time discounting, so that the older the review, the less weight it would carry in the rankings. If anyone has experience working with this or wants to propose/discuss ideas, please reach out - comment here, email me, or tweet @ReviewSignal.

BlueHost, HostMonster, and JustHost Down (11/25/2015)

We are seeing a lot of people complaining about BlueHost, HostMonster, and JustHost being down right now. It doesn't seem to affecting other brands I checked (HostGator, iPage, A Small Orange, Arvixe, Site5).

It is very strange that HostGator isn't down this time. Their last major outage in 2013 affected all four of those brands (source: mashable). I am wondering if their infrastructure has been separated meaningfully between HostGator and the other three.

I've heard rumors of a DDoS attack from people saying that's what support told them. No official confirmation.

If you're considering changing web hosts, we track and publish what people think of most major webhosting companies here.

It's gotten to the point people are making memes. Not good.

Site 5 Web Hosting Logo

Site5 Acquired by Endurance International Group (EIG)

Endurance International Group yesterday announced in their second quarter results that they acquired Site5 and Verio.

During the quarter, the company acquired assets of Verio and Site5. The total cash consideration for these acquisitions is expected to be approximately $36 million.

Via MarketWatch.

EIG continues to acquire hosting companies as a growth strategy and doesn't seem to plan on stopping any time soon. The hope is that Site5, which is rated as one of the better companies on Review Signal, operates more like A Small Orange which was acquired in 2012 and continues to be rated very highly. Time will tell how it plays out, I will certainly be watching the data and trends.

That brings the list of EIG companies here on Review Signal to:

 

Endurance International Group – Profitable?

Endurance International Group is one of the largest web hosting companies who own many of the brands you see in the consumer space. EIG owns A Small Orange, BlueHost, HostGator, HostMonster and JustHost to name a few of their most well known brands.

What caught my eye was an article on Nasdaq, where EIGI (EIG's Stock Ticker) is up and at an all time high. A lot of analysts are rating it as a buy and the price surge seems to indicate people are listening. But I'm not a financial adviser, nor am I interested in making stock recommendations.

What does interest me is web hosting and considering that is the core of EIG's business, the underlying numbers are quite fascinating.

EIG had its first year with a positive operating income with $629.85 million in revenue and $617.37 million in total operating expense leaving $12.48 million in operating income. However, they weren't profitable because they have a lot of debt they are paying off. EIG's net income was a loss of $42.82 million.

"Total subscribers increased by 91,000 in the fourth quarter. Average monthly revenue per subscriber rose 12% year over year to $14.78. For all of 2014, the number of subscribers rose 17% to 4.087 million and the average monthly revenue per subscriber increased 11% to $14.48." - according to the article on Nasdaq

$14.48 per month, per subscriber. $173.76 per year per subscriber. It's easy to understand how they are paying such high commissions with those numbers. That number also seems to be trending up which is a good sign for the financial direction the company is going.

How does that compare to other companies?

I dug up an old GoDaddy S1 from 2014 [Godaddy Reviews] which states their average revenue per user for the trailing 12 months is $105 (it's fluctuated between $93-$105 over the past few years).

I also found Web.com's latest 10K filing which stated monthly ARPU of $14.62. which is $175.44 annually.

EIG and Web.com look very similar just reaching positive operating income this year and very similar revenue per subscribers. It states pretty clearly in Web.com's filing "The growth in average revenue per subscriber continues to be driven principally by our up-sell and cross-sell campaigns focused on selling higher revenue products to our existing customers as well as the introduction of new product offerings and sales channels oriented toward acquiring higher value customers."

It seems like common knowledge to anyone in the web hosting industry that these companies are getting users in cheap. Those ~$5/month hosting plans are obviously not the only thing being sold. It would seem they are able to on average roughly triple that monthly figure by selling other services.

So the question in my mind becomes what do those new products look like? We're seeing a jump into the managed WordPress hosting space. Is there actual innovation that's going to happen or are these big companies simply going to carve out some of the high margin services provided by niche providers? Is that going to be a win for consumers?

I don't have the answers, but I'm certainly interested to see how it plays out.