As many webmasters who have been burnt can attest, "unlimited" in web hosting lingo usually does not really mean "unlimited" when it applies to disk space and bandwidth. While the rest of a web host's feature list is usually written in English, this word is best understood as being written in the language of Humpty Dumpty.
In Lewis Carroll's Through the Looking Glass, Humpty Dumpty redefined the meaning of the word "glory" to mean "a nice knock-down argument". When Alice, to whom he was speaking, protested that this was not the correct meaning of the word, Humpty Dumpty replied:
"When I use a word," Humpty Dumpty said in a rather scornful tone, "it means just what I choose it to mean -- neither more nor less."
In the same way, when web hosts use the word "unlimited" to say that you get "unlimited disk space" or "unlimited bandwidth" (or its equivalent "unlimited data transfer"), the word "unlimited" usually gets redefined to some other meaning, at the web host's discretion. The exact meaning varies from host to host, in the spirit of Humpty Dumpty, but it invariably means the opposite of the "unlimited" found in the English language.
Let's translate one version of the Humpty Dumpty "unlimited" to real English.
According to a prominent web host, account holders are given "unlimited disk space". On this host, if you look at the fine print, you will find that "you can add as much content as you want, but maybe not all at once" (unmodified quote given). In other words, you can't use the "unlimited" space in one go. You can use an unspecified amount at first, and then add more. But who gets to decide how much you can use each time? The web host, of course.
This is confirmed by their next sentence, "The vast majority of our customers' sites grow at rates well within our rules, however, and will not be impacted by this constraint" (emphasis mine). Specifically what these rules are, that is, how many MB you can use at first, at what rate you can increase your disk space, is not stated. It is determined not by the contract you have with them when you signed up, but by their whim.
Or to put it another way, the web host has cunningly managed to entice you to host with them without even specifying how much disk space you can use.
When web hosts provide "unlimited" space, they often have to restrict what you can use the disk space for. They need to do this since if every user really uses their "unlimited" space, the host would have to spend an unlimited amount of money to buy an unlimited number of hard disks to provide space for them.
As such, if you look at the Terms of Service (TOS) agreements of web hosts providing either unlimited space or incredibly huge amounts of disk space (such as those providing hundreds of gigabytes or even thousands), you will notice that you cannot use the space for any purpose you choose. In most cases, their condition is that the space can be used only for the website. You cannot, for example, use the space as a sort of offsite backup space for your home or office computer.
Web hosts that specify a realistic amount of disk space for each customer usually don't need such restrictions. You are allowed to use the disk space in any way you wish.
When it comes to bandwidth or data transfer, "unlimited" limitations (to use an oxymoron) are usually implemented by monitoring resource usage, a matter which I have written about at length in The Fine Print in Web Hosting: Resource Usage Limits. Please see that article for more information.
Not documented in that article, nor in another of my articles that mentions unlimited plans in passing, is the side effect of hosting with a shared web host that provides unlimited bandwidth: performance. Think about it this way. When a web host provides unlimited this-and-that, many people will be attracted to their plans. Be honest — I'm sure you find it tempting too (until you have been burnt, of course). Some of these people will be running huge static websites that will use enormous amounts of bandwidth. Since your site will also share the same bandwidth pipe as these people, and perhaps worse, be on the same server as they are, the performance of your site will be affected. To use an analogy, everyone is sharing the same pie. If someone takes a large slice of the pie, the rest will have to share the remainder, however small it may be.
Due to the bad reputation the terms "unlimited bandwidth" and "unlimited disk space" have in webmaster circles, newer more PR-savvy web hosts now list a monstrously huge number for the bandwidth and disk space they provide. For example, a few of the web hosts mentioned on the Budget Web Hosting pages list their disk space and bandwidth allocations in the thousands of gigabytes (terabytes). These gigantic allocations seem to have taken the place of "unlimited" in web hosting parlance. If you see such gigantic provisions, compared to the more sober provisions of other hosts, it means that the restrictions mentioned above probably apply in some way or other.
Note that not all uses of the word "unlimited" in a web hosting package is necessarily Humpty-Dumpty-speak. For example, all web hosts allow you to create unlimited email aliases and so on. I believe that when these hosts advertise such features, they usually really mean it (although I must clarify that I've not actually tested such facilities to their limits.) These features are usually limited by the other aspects of your hosting account anyway, like disk space, which is probably why these hosts don't bother to restrict the number you use.
Before I get accused of being a hypocrite by people who have seen some of my other websites, let me clarify and confess something: I do have sites hosted on such near-unlimited web hosts. These sites usually fall into one or more of my "non-essential" sites category.
Essentially, I place such sites on web hosts that provide unlimited domain hosting. This makes it easy for me to dump new domains that I've registered, so that I can play with them, develop them or use them for testing. I also use them for small-time "demo" sites that don't get many visitors, like the Feedback Form Demo Site. Since these sites don't get serious traffic, and the unlimited domains feature allow me to host any number of domains without paying extra, I'm willing to take a small amount of risk with such hosts. However, it should be noted that whenever I regard a site as important, or it starts to get useful traffic, I move it to a web host that I trust.
In other words, I don't use such hosts for their unlimited disk space or bandwidth, but for the unlimited domain hosting. Because of my policy of moving sites away to other web hosts whenever a site gets decent traffic, I effectively don't even use a fraction of the near-unlimited disk space or bandwidth.
And yes, I know "unlimited" domain hosting has its limits too. But I go in with my eyes open (I hope).
When scrutinizing web hosts, look out for the "unlimited" line or its modern equivalent. Read the fine print. Don't accept the term at face value when it is used for space and bandwidth. Opting for unlimited disk space or bandwidth may mean that your site faces unspecified, or vaguely-specified, limits, as compared to web hosts that tell you upfront what you are getting.
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