Key Takeaways
Shared hosting may still command the largest slice of the market, but its role as the go-to entry point for small businesses is slipping as VPS surges ahead with faster growth and stronger demand drivers.
Despite shared hosting’s larger market share (around 35%), several reports, including from Allied Market Research and Market Research, put VPS growth at a 12-16% CAGR, compared with 10-15% for shared hosting.
And there are a few good reasons why.
In a Liquid Web and HostingAdvice webinar, industry experts Chris LaNasa, Liquid Web’s Sr. Director of Product Marketing, and Ryan Frankel, HostingAdvice CTO, emphasized that many SMBs are starting on VPS hosting plans as the default — and it all comes down to better performance, security, and cost predictability.
Why SMBs Are Skipping Shared Hosting
Any well-versed hosting provider understands that choosing a hosting plan isn’t a simple decision for SMBs. And nowadays, developers are also moving constantly: 71% have migrated at least twice in the past five years.
That churn costs providers real money. If a $50/month VPS customer leaves, that’s $600 per year down the drain. Multiply that by dozens or even hundreds of accounts and the loss easily dips into six figures.
Industry benchmarks also specifically show SaaS customer acquisition costs at $702 per account, while B2B averages $536. eCommerce businesses come in lower at about $70, but that’s no chump change when considering the multiplier effect.
That’s exactly why LaNasa and Frankel believe VPS adoption is accelerating: SMBs don’t want to outgrow shared hosting in six months. VPS gives them breathing room without breaking the bank.
Take a look at numbers by monopolies: Amazon found every 100 ms of latency cut sales by 1%. Walmart saw a 1-second speed boost increased conversions by 2%. And Google reports bounce rates climb 32% when load times stretch from 1 to 3 seconds.
“When people visit websites, they expect it to be fast. If the page doesn’t come right up, people leave incredibly quickly,” Frankel said.
LaNasa also pointed to a Deloitte study that reported that a 0.1‑second improvement in mobile site speed correlates with an 8.4% increase in conversion rates for retail sites.
“You can see where these things add up very quickly and how the cost benefit associated with upgrading to a VPS starts to make sense,” he said.
Shared hosting can’t always deliver that consistency. With VPS, SMBs get dedicated resources at a fraction of the cost of a true dedicated server. The challenge, Frankel noted, is helping customers understand why that difference matters and why it’s worth the spend.
That lesson is easier to convey in today’s climate: After years of cloud hype, thousands of companies learned the hard way that usage-based pricing can quickly turn into what the industry affectionately calls “sticker shock.”
Because, unsurprisingly, businesses like knowing they’ll pay $X a month for Y resources instead of seeing a bill ebb like high and low tide. In fact, a 2024 Flexera report revealed that 82% of enterprises said managing cloud spend was their biggest challenge.
“One of the things that you run into with that tends to be a very complicated pricing structure, oftentimes usage-based,” said LaNasa. “And what you can get from a VPS is…a flat transparent monthly rate. That way, you don’t get any budget surprises based on usage rate, even if you have a high-traffic environment or high-traffic season.”
Frankel added: “From my point of view…almost everybody’s revenue…is so much greater than the cost of a VPS. It’s very hard to argue why shared would make a ton of sense.”
And security pressure is growing, Frankel said.
Unlike shared hosting, VPS environments are isolated, which reduces risks from noisy neighbors and allows for compliance-ready infrastructure, which is crucial for highly sensitive industries like finance and healthcare.
“Your server environment is completely separate from other users, and so that prevents security issues on one from spreading to the other,” LaNasa explained. “You can also do some custom hardening, like root access, [which] allows your managed hosting team to implement advanced security protocols.”
For providers, this is the story to sell: VPS checks the boxes of speed, security, and stability, but without the unpredictable price tag of shared cloud or high price tag of dedicated servers.
When to Recommend a Hosting Upgrade
Both LaNasa and Frankel emphasized that the breaking point for shared hosting usually comes when traffic spikes overwhelm a site or when businesses demand tighter control over performance and security.
LaNasa suggested retail surges as the ultimate stress test: “If your site starts to slow down or crashes during your busiest times, costing you sales and frustrating customers, it’s a good indication that it’s time to make a move.”
A study by Akamai found that on Black Friday and Cyber Monday, eCommerce traffic can spike more than 57% and 48%, respectively, compared with a typical day. Shared servers just aren’t designed to handle that kind of traffic.
“There’s a good chance that it’s your server [that] just can’t keep up with what your customers are asking for,” he added.
Beyond traffic, patience has all but vanished.
“The expectation now online is that it is nearly instant,” Frankel said. “And with shared, you can run into a lot of problems — not just your own website and the lack of resources you might have, but other people on the server can affect your performance. And that can be a huge, huge problem when it’s not even something you can fix.”
In short, shared hosting works, until it doesn’t. And when VPS is repeatedly recommended for scalability and reliability, it explains why SMBs are skipping shared altogether and going right to VPS.
Hosts should take note: VPS is quickly becoming the product to watch.
