This is quite common in certain hosting markets.

I do wonder how much business sense it makes for the host in certain cases. Sometimes the discount one gets for paying in advance is quite significant, so much so that it makes one wonder if the company can actually win at the end of the year by investing those money in further growth. Especially when the "lock in" method is not being used, and the customer can get a prorated refund at any point of time.

The "lock in" method can be good in the sense that it will retain the customer for a whole year, and will be able to get an overall impression of the services. if the customer pays monthly, a small, rare issue can make him leave, without giving the host a second chance (not that there's anything wrong with that ).