Let's recap the different types of hosting services that are available:
1. Free web hosting - these are normally sponsored through advertising. A no-no if you are serious about hosting your website for business purposes.
2. Shared hosting - shared hosting is the most common type of hosting available today. This is most commonly used if you are running a small website or are just starting out.
3. VPS hosting (Virtual Private Servers) - this is the poor man's dedicated server. With VPS hosting the hosting provider partitions one server into multiple private spaces. You are therefore still sharing a server with other clients, but you get your own private 'slice' of this server. This means that your website performance will not be affected by the other clients sharing the same server since each client has his own virtual private space in which they run. Clients that host on VPS servers therefore has access to the same type of services normally only afforded by dedicated hosting technology
4. Dedicated hosting services are needed by clients with large websites that generate high volumes of traffic. There are also some companies which need huge storage space, and are not willing to share space with smaller companies but with the price of hardware and hard disks coming down in recent years, the more common reason to require a dedicated server these days are more to do with bandwidth usage and performance.
In both these cases, dedicated hosting providers the solution. Instead of sharing space on a shared server or even with a Virtual Private Server, you will lease an entire dedicated machine that is pre-configured for your requirements. Hosting companies that offer dedicated hosting are often larger and more established than companies that only offer shared hosting. Small web hosts often do not have the financial or technical muscle to provide dedicated hosting.
Web hosting companies that make provision for dedicated servers need to make a considerable investment in hardware and software, and because the client has full control over what type of software should be run on these machines, the hosting company also requires more investment in training and skills development of their staff. The hosting company also needs to make provision to stay up to date with the latest developments in hardware and software. The web host therefore needs to upgrade technology regularly to be able to provide state-of-the-art equipment.
Remember that the advantages of dedicated hosting is that the client does not control the hardware and basic software that is required to run the server, nor does the client have to employ any technical resources to maintain the hardware and software - this is completely the responsibility of the dedicated hosting provider.
This is why dedicated hosting costs considerably more than shared hosting or even VPS hosting. The cost can range between $99 to $2500 per month depending on which hosting company you deal with and depending on the client requirements. The cost will also be determined by the type of service contract that will be put in place between the client and the hosting company. Such a contract is commonly called a Service Level Agreement and it spells out the requirements of the client to a low level of detail. These requirements normally cover issues such as bandwidth usage, the required up-time of the server, scheduled maintenance slots and so on. The higher the required level of support from the hosing provider, the more expensive the monthly rental contract will be.
In some cases the client would do some of the management of the server himself (this is called un-managed hosting). In this case the hosting provider will only provide the physical server and infrastructure (e.g. network connectivity, storage space etc). In this case the actual management and monitoring of the servers are the responsibility of the client and this type of dedicated hosting should be on the cheaper side of dedicated hosting costs. It must be remembered then though that the client must make provision for employing technical staff to maintain the servers.
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