Oakley Capital’s purchase of the two leading players in web hosting control panels, cPanel and Plesk, comes at a very interesting time. It’s a time when the cloud hosting market is changing very rapidly. Traditional web hosting companies are seeing a migration of clients to more application specific hosts like WP Engine, AWS, Azure and new platforms like STORM, developed by Nimbus Hosting. This is a fantastic time for the founder of cPanel to get out and try something new.
Both cPanel and Plesk are very similar to utility (water, gas and electricity) companies. They receive almost all their revenue from rolling monthly licences for their products. This means they receive millions of dollars each month without any additional cost. On top of this, they don’t have the infrastructure or maintenance costs of utility companies which is perfect for any investor.
Oakley Capital and founding partner Peter Dubens, have a history of buying multiple internet companies, merging teams, cutting costs and then selling on to a market leader or onto another private equity company. Examples of this include Pipex and Host Europe. Both of these companies were mergers of multiple smaller hosting companies and then cost reduction.
In the case of Plesk and cPanel, if and when this merger is confirmed, our gut feeling is that the software development teams will be combined with a raft of redundancies which probably focus on the more expensive cPanel team based in Houston. This will massively reduce costs between the two companies and most importantly increase the profit considerably. This new vehicle could be a huge cash cow for either further acquisitions, pay off the purchase of Plesk and cPanel or a potential sell out to larger player or private equity.
Another avenue could potentially be that either United Internet, owners of 1and1, or the GoDaddy group purchase both these companies to reduce their costs and have a far great control of their customers and the market.
We suspect Oakley Capital will only look to hang onto these investment for 3-5 years so we should see their intentions become clear before the year is out.
What does this mean for the industry?
For the customer, this is potentially a very good thing although we suspect a painful road to get there. Both cPanel and Plesk were built for an industry and consumer that has vastly changed and they’ve found it very hard to keep up as the industry has diversified.
This lack of innovation has already caused an explosion in products like STORM, WP Engine and Kinsta. These new products have a much smaller set of features but are much more relevant for the market place as they are easier to use and focus on what they are good at.
To be fair on Plesk and cPanel, in particularly, have been stuck in the 2000s for some time. The majority of the code base is written in Perl, a technology from the 1980s. On top of this they’ve struggled with the usability and not focused on what end users actually require.
For the smaller hosting companies, this merger could make it much tougher for them. I suspect licence costs, in the short term, for both Plesk and cPanel will go up which will make it much harder to compete in a market that is already saturated.