They knew it all along

Smart Web hosts observed the dotcoms on their way to a massive implosion and shifted business gears to service more stable enterprise-based customers. Even as the companies that created a need for Web hosting wither, the Web hosts themselves live on to service a new customer base.

“It's definitely not going to go away,” said Helen Chan, analyst for The Yankee Group. “Maybe [Web hosting] has been mitigated, but it has not been eliminated.”

Mitigation means moving from the companies that made the World Wide Web a household name to those that were already household names but didn't have a Web presence.

“Large enterprises need a Web site,” Chan said. “Those that have set something up on their own or are trying to maintain service in-house, it's more of a cost to them.”

That opened an opportunity for Web hosts.

“We saw many months ago that there was a need to focus on the click-and-mortar segment rather than the new economy type of customer,” said Joe Bartlett, vice president of marketing for Hosting.com, an Allegiance Telecom subsidiary that sprang from HarvardNet. “I think a lot of providers were a little slow on the uptake on that.”

No one will admit that, but all agree that things are different this year.

“It's a much more educated market. It's a much more fickle market,” said Steve Keifer, Digex's business development director.

‘Our story is going to be about survival. There's lots of pain out there to go around, and it creates a great market opportunity for us.’
— Steven Eror, Consonus

WorldCom recently took control of Digex by acquiring the company's parent, Intermedia. For Digex, though, it's “business as usual,” Keifer said.

Digex centralizes data centers and optimizes servers and services per square foot, he said. This enabled the company to weather a market where dotcoms and application service providers aren't funded like they were, he said.

“They [dotcoms] never did generate cash, which is the machine that runs business,” said Steven Eror, president and CEO of Consonus. “The rap that surrounds the dotcom is attributed to their newness as businesses and their undisciplined character.”

“They lived large,” said Ron McMurtrie, WorldCom's e-services vice president, who said his company was not “struck by the slowdown per se in some of the customer segments because [it is] fairly diversified.”

About 75% of WorldCom's business comes from the enterprise sector where everyone agrees the money is and will be.

“There's a significant drive to outsource managed hosting for a lot of the big enterprise-specific applications,” said Joel Whitman, vice president of product strategy and marketing for Genuity. “Customer demand is getting much more rigorous.”

As customers, the dotcoms were used to the best-effort performance of the nascent Internet. They are being replaced by customers who demand “that our products behave a lot more like [LAN] or [WAN] products and a lot less like Internet products,” Whitman said.

The trick, said Consonus' Eror, is not to confuse the dotcom phenomenon with Web commerce.

“The real question is which of these businesses are disciplined and ongoing businesses, and which Web commerce will continue,” Eror said. “Our story is going to be about survival. There's lots of pain out there to go around, and it creates a great market opportunity for us.”

There's also a market opportunity for a company like Equinix that “hosts the hosts,” said Jay Adelson, Equinix's chief technology officer and founder.

“We've seen the hosting companies in our space make a transition from the dotcom to the enterprise world. They started to focus more on security,” he said.

That's where Equinix makes its play.

“We built these incredibly secure bunkers in order to meet the [service level agreements] for the network providers,” Adelson said.

Now Web hosts “find they're already in a perfectly secure location to meet those [service level agreements]. It was convenient,” he said.

Just like having enterprise customers on hand to cushion the dotcom loss was convenient for the Web hosting industry.