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I have vps with windows 2008 r2 standard . I have one static IP for server . I want to host multiple websites on my vps . but I am confused to use dns server or pointing domains to that IP and bind host names in iis7 only to each domain associated . and what is the best using dns server or using domain free dns server and pointing only to ip address.

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Use Host Headers to serve multiple domains from single static ip within IIS7:

Consider using Zerigo for DNS, they are fantastic and its hassle free. (paid service)

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