I’ve had a Dreamhost account for just over a year. I was lucky to catch one of their one-day promos, so I got a deeply discounted rate for the first year. But now the second year is starting, so they sent me a brief email to let me know that it was time to pay them. I signed in to the account control panel and checked my billing info. It said I owed them $114 or so for 2008-9. So I poked around the billing section a little more, and I saw an option to change the contract length. The longer the contract, the cheaper it is, to the tune of $1/mo less per additional year. So I switched my plan to three years, since I’m content with DH so far. To my surprise, I now owe them $0. In 2011 I’ll have to pay them $286, but for now my account is clear. That’s right, I asked for more service and they are giving it to me without being paid. Interesting. That’s not usually how business works.
My only guess is that their business model is predicated on a sufficient percentage of customers’ bills coming due each month; given that certain revenue, it doesn’t matter when any given customer actually pays. They have virtually zero marginal cost per customer and virtually zero recurring cost per customer-month. Their capital is servers and disk arrays, which are divided among a few hundred customers per cluster; they build a new cluster every month or so (week?), to accommodate incoming customers, but once a cluster is built it costs almost nothing to maintain. Power, cooling, salaries, office supplies, rent, and fiber connectivity are amortized over all their thousands of customers. So, as long as some bills come due every month, they’ll make salaries and rent. It doesn’t particularly matter when any single customer pays. They probably can’t even make good use of a surplus… it just goes into the bank account until it’s time to build the next cluster.