Why Filehosting is a bad business proposition

[Rox]

So you are looking to invest your money in some business which will give you awesome returns overnight? Looking around the forum you find that there are so many filehosts whose threads buzz day in and day out with people who work for them as affiliates making them lots of money. Uploading files and spreading them all over the internet resulting in instant popularity of the filehost and purchase of premium accounts by innocent downloaders. This increase the earnings of filehost owners multi-fold overnight. If that is not enough, they even offer advertising spaces on their download pages to make more money.

Sounds like an awesome business model without much investment, right? Wrong!

Let me explain why this business model sucks and you will eventually have to shutdown. I can give you examples of huge filehosts who shut themselves down in a day without any prior warning. Want some examples? Filesonic, Fileserve, Wupload etc etc etc The list can go on for pages together.

First of all, you need quite some investment amount to start off with a filehosting business. Domain, hosting, site script, unique theme, excellent coder team, servers (2 dedicated servers minimum), advertisement costs etc would all cost you a minimum of 3000 USD to begin with. Moreover, you will need money to pay your affiliates for atleast a month since it is very difficult to get ads on your site for the first month. Note - the site will need to have an excellent maintenance.

Once you start off with this your site will gain momentum. More and more affiliates will join the site and start giving you business. All is well until now - your site is getting popular, you are selling good number of premium accounts, you have a good number of advertisers ready to put their ads on your site, you have lots of affiliates, affiliates are happy with the income you are providing them etc.

You may now think - Where is the problem here? Why is this business not good?

Well, the real problem starts now!

As soon as paypal and other payment systems start knowing about your business - your accounts will be frozen. All money in them would be gone for quite a long period. You won't be able to receive money from advertisers nor you will be able to pay your affiliates and the server fees.

Result - Your affiliates will be unhappy and your server provider starting to pressurise you.

Apart from the above monetary reasons why one should not even think of filehosting business, there are other reasons too.

That is - You do not have a control over what people are uploading. If somebody uploads copyrighted content like movies, mp3, tv shows, games etc you will have to deal with law enforcement agencies and copyright claims agencies who are always behind sites like these. God save you if someone uploads kiddie pr0n on your host - you are gone! We have all seen so many hosts being taken down for this very reason.

Now, it is upto you to decide whether this business and the money that comes with it is worth all this hassle?

There are so many better areas on the internet where you can make money legally.

Think about it! You do not want your site to go down the drain like 1000s of them.

 

[Froomple]

Very well written Rox.
People often intend to make "quick" money and choose this path, they're not aware of the consequences, and are definitely noobs in managing such a huge system. Once they become popular, it's virtually impossible for a "Everyday" uploader to manage it.

That's the main reason most of the new filehosts fail.

 

[msk19994]

Sir
Your article is very well written but the thing is that it depends on multiple factors regarding the criteria that you have mentioned at first the people managing the system should know how to manage it, if they do and have some experience in managing it and have a good amount as backup amount then it is possible to run a filehost.
And now regarding payment processors nowdays only stupid people according to me use paypal and other payment gateways that are under the control of the US if they want to succeed they should choose other payment gateways and regarding premium account sales they should find companys that first are legit and are not under the juristiction of the US.
And third the host should always even if the owner is in the hospital he should always delete the dmca, he should have a special team just to delete the dmca ie the files that are in the dmca and respond every dmca so that some communication between the two parties.
So the conclusion is that if a person wants to start a filehost then he must have a team ready to do whatever is takes and the people in the team shouldnt just buy servers from any reseller they should directly contact the datacenteres so that they might provide them with some deal if not then most of the new host will die just by paying server bills and when it would be their time to pay they couldnt pay their users.
In the end i can say that people still can start a filehost business but they shouldnt act stupid and start in a day or two they should do a thorough research before getting in the game.
Note: My sentences would have some grammatical mistakes as i am too lazy to fix them

 

[Yashraj]

I only partially agree to it.

Filesonic, Wupload, Fileserve's close down was very well expected. Several filehosts started the new policy wherein a file can only be downloaded by the actual uploader of that file rather then anyone. This limited file sharing. But this was not the end they still thrived.
However after a month, it was quite evident that these are going down the drain and people shifted their business/accounts elsewhere.

About the investment part, $3000 is not really a big cost, given the fact that for every business you require and investment. In fact for this one you can at least manage from home in the initial stages, your employees can also work from home. Regarding affiliate payments, most of the people go for the PPS scheme, which means filehost will have to pay their affiliates of how much business they bring, regardless of downloads made. So if the payments you make to affiliates increase, so does your revenue.

About the payment processor, only an idiot will even bother to start with PayPal. The best thing to do here is source a local/domestic card processor(for non-US citizens) who will process your payments. You can also go for e-currencies like webmoney and bitcoins. They are getting popular day by day and getting more accepted mode day by day. Also for the payments, you can also have resellers! Resellers can make payment via credit card/paypal(secretively and legally) or bank transfer. Resellers do help getting a lot of business in the initial stages.

For the copyrighted material, your TOS should and will mention that "yourcompany is not responsible for the content uploaded by the user/member of yoursite.com". You will need to maintain a specific department to handle DMCA and other such complaints and if possible dedicate some employees to cater to such complaints. Also regarding child porn, filehosts do mention in their footers nowadays about child porn. By having a proper legal framework, you can't be sued.

Filehosting is quite a lucrative business but, like you said, is not meant for noobs. You need dedication and knowledge to start and run a successful filehost. One should have experience of working under such company before starting their own. You may not even realize the exponential increase in the resources once your filehost picks up, disk space, bandwidth will increase rapidly and if you're unready for it, you are dead.

If anything, one thing is sure that the demand for filehosts WILL increase. Piracy and globalization is increasing day by day making file sharding more popular resulting in increased demand for filehosts.
Some of the old major players are dying - Rapidshare, extabit, ryushare, hotfile, etc. replaced by 180uploads, billionuploads, etc.

 

[hihotfile]

Yashraj thanks for writing very good ,briefly positive replay i appreciate your efforts to explain every thing and every aspect

 

[Rox]

Yes Yashraj, I 100% agree that once your host is in the limelight you will have to invest in it like crazy! You will need dedicated staff round the clock and so many other stuff to run the show. What motivated me to write this is the current state of filehosts, most of them (if not all) are in sick state and have some or the other problems. Even hosts like RS has had to limit the business due to US pressure (which you can't ignore unless your are TPB).

My point of this thread was - it is really not worth starting one unless you are ready to face anything and ready to invest shitload of money.

 

[LulzThat]

If I would engage seriously in something this, I would make a business model like zippyshare, 180upload, mediafire, putlocker, freemium filehosts, just earning from advertisement, CPA (Pay Per Install), PPC & CPM

I earning just from advertisement its harder to survive in the beginning, I would need to invest tons of money