Web hosting goes to market

Web hosts see big things in store for Internet-based business as their customer base shifts from the Internet savvy to more traditional brick-and-mortar corporations

With dot-coms being tossed about like surfers in a hurricane, it would not be unrealistic for the Internet industry to batten down the hatches and wait out the storm.

But that won't happen - at least according to the people who will play a background part in making it happen. Web hosting companies are not only looking for continued success and growth this year, they're looking for a tsunami of new business.

The Web hosting market looks so strong because the business is no longer dominated by innovative new players trying to establish a niche but by established players who have a niche that they're looking to expand into a new electronic arena.

"The next economy still remains to be created," says Pascal Aguirre, vice president of the convergence solution provider practice for Adventis. "A lot of the pundits refer to the dot-coms as the new economy. We don't like that term. We think the fundamentals of economics have been around forever, and little has ever really rattled them."

Abha Divine, vice president of corporate strategy for SBC Communications, is a little more sensitive to the impact the dot-coms have had and will have on the Web hosting business.

"[The volatile market] has certainly impacted the business to some degree. However, the use of the Internet is not something peculiar to these dot-coms," Divine says. "We're seeing a lot stronger growth in traditional companies making expanded use of the Internet to serve their customers, to work with their suppliers, to work with their employees."

Indeed, as Web hosts prepare to expand their businesses, their collective customer base is changing from the start-up, know-what-they're-doing Web-alecks to traditional brick-and-mortar companies eager to enter the electronic marketplace without adding in-house layers of personnel and expertise.

Changes ahead That shift already was under way when Broadwing Communications moved into the Web hosting space, says Tony Tomae, vice president of Internet and data services. "We came in in May, when the dot-coms were sort of fading. Our model wasn't built around going to the dot-coms," he says.

Broadwing has its share of dot-com customers, but Tomae says they're not the keys to today's Internet business. "The last couple years, it's been all about eyeballs to the Internet. Things are shifting," he says.

"Web hosting isn't just about the dot-coms," says Keith Paglusch, president of Sprint e-Solutions. It's about "the MGMs of the world or the General Motors of the world that have Web sites and don't want to fool with doing this themselves. They want to make movies or build cars."

Also revising their roles are the early players that started out handling things themselves, experienced the difficulties and expenses and decided "it's just not worth it," Paglusch says.

These pioneers then decided a Web host can "do it more economically or we can do it with much greater quality if we do it with someone like Sprint," he continues.

A Web host provides varying degrees of expertise to its customer, says Peter Fortenbaugh, senior vice president of strategic planning for Exodus Communications. "Technology is becoming more complex, so to integrate all these technologies requires more expertise," he explains. "Companies are looking more to an outsourcing partner to help them with these integrations - things like new storage solutions, content distribution solutions, load balancing solutions."

Besides that, there's a dearth of good hired help.

"People need to outsource a greater portion of the operation than they used to," Fortenbaugh says.

Strategy shift The changing face of the customer is causing the Web hosts to alter their strategies, says Steve Hoffman, director of product management and hosting services for Telenisus. "We are a managed service infrastructure provider, and there's a portion of our business that's in the dot-com arena," Hoffman says. "But another area of our business will be coming from the infrastructure to medium and large businesses with complex requirements."

Those companies find themselves confronted with a 21st century conundrum: Do they rely on the established telecommunications name from the past, or do they sign up with the new guys in casual clothes who grew up punching keyboards, not switchboards?

For example, AT&T has an image of stodginess in an area many might suppose it would dominate. "The image has been a problem in the emerging dot-com segment," says Jenny Proctor, director of software management for AT&T Hosting Services. "If you're somebody hip and groovy who just got out of college and find yourself partnering with AT&T, it's like something you expect your father to recommend."

On the flip side, "AT&T is going to mean quality," she says. "If they're looking for reliability, that's where they'll go."

Albeit reluctantly.

"We still have some ways to go around changing that image," she says.

Meanwhile, the Web hosting business itself is becoming cluttered and stratified. Players are coming in; facilities are being built; worldwide reach is expanding; business is booming and could potentially explode.

"It is a total growth opportunity," Hoffman says. "If you look at some of the research that has been done, they're doing projections through 2004, and we're looking at continuing to grow."

Year-end projections for 2000 listed about 22 million square feet of available hosting space with demand estimated to exceed 50 million square feet shortly thereafter, Hoffman says.

"You're going to see organizations continuing to evaluate taking the infrastructure and putting it outside their current operations," he says.

That's where the real scuffle will begin. All Web hosts offer a variation on the same theme: managing a customer's outsourced Web needs.

"The customer base is changing for a couple of reasons," says Fortenbaugh. "The early adopters were very technologically sophisticated and had all the people in-house who could manage their own sites and really wanted to maintain tight control of their operations."

Things got bigger, more complex and more expensive.

"Now you have the mass majority moving on line so not all the companies can find people to manage their sites," Fortenbaugh says. "They don't have the Internet stars in-house to manage it or they just want to focus on different competencies, focus on more internal focused strategic issues for the company."

Outside help appears in packages that range from do-it-all dedicated hosting to shared hosting, where the customer takes more responsibility for networking and equipment decisions. Customers also can choose between local, regional, national and international data center presences, depending on the size of their business, their customer base and their plans for expansion.

Think locally HarvardNet, for instance, has recently put all its eggs into the Web hosting basket, concentrating on small and medium-sized businesses in New England and the mid-Atlantic states.

"We're able to do that very effectively, because we're a regionally focused company. We're not spreading ourselves thin across a wide geography," says Joe Bartlett, HarvardNet's marketing vice president.

The regional approach blends with HarvardNet's customer focus, allowing the firm to focus on customer service.

"Those targeted companies, 500 employees or less, are much more likely to outsource more of what they need from a hosting provider than a larger enterprise," he says. "We have a pretty healthy mix of different customers, many of which are traditional brick-and-mortar companies that have a real strategic purpose behind what they're doing with their Web application."

And they only need a regional host.

The regional strategy has its place, agrees Adventis' Aguirre. But "if your customer is a large or medium enterprise that operates not just on a nationwide basis but in many cases on an increasingly global basis, it is very important that you choose a hosting provider that can at least match those characteristics, if not surpass them," he says. "You want to be able to have your content and applications accessed and hosted on a nationwide basis, if not on a global basis, with access to a world class Tier 1 backbone."

On the other hand, if the customer's footprint is restricted - usually because of the size of the business - "a regional player is a viable alternative," he says.

Act globally That could be a short-term strategy, though, as national hosts start taking international approaches while maintaining a regional presence.

"The stakes are rising very fast," says Sean Brophy, vice president of corporate development for Verio. "In most telecom businesses, there are tremendous economies of scale, and regional players don't get adequate leverage on their scale to be long-term competitors."

Brophy's harsh assessment went even further, predicting that "you're going to see many of those smaller regional players have a very difficult time getting funding."

HarvardNet's way of overcoming that shortcoming is to offer personalized service in its region.

Covad Communications takes a regional approach to smaller players with yet another twist: It brings its DSL network into the mix. Covad has traditionally been a wholesale provider offering ISPs a broadband connection that they can then package with their other services and resell to end users, usually small businesses. This approach is being expanded into a package Covad calls Virtual Broadband Service Provider.

"We have the capability to provide a complete turnkey ISP in a box to large companies with established brands and a loyal following of constituents," says Kim Odom, group product manager for Covad's IP services. "As we move forward and begin signing up these VBSPs, we will be offering a Web hosting component to the small business."

The combination gives Covad a market niche.

"Covad isn't really being a competitor in the pure-play Web hosting space. We'll be offering Web hosting services as part of our bigger broadband get-your-small-business-up-and-running-on-the-Internet-type solution. There will be a Web hosting package that's included in the price of your DSL."

That approach, with its combination of high-speed services with Web hosting capabilities, isn't even close to the norm in the business. And it doesn't come close to what a national company such as Sprint has on its drawing board.

"Somebody that doesn't have a national or global reach is missing in this regard," says Sprint's Paglusch, using a small realty company based in Branson, Mo., as an example.

"It's very important to have a national reach because there's people all over the place who might be interested in buying vacation property in that area vs. just a regional reach of being able to serve people in Missouri and Arkansas. It means a lot more revenue," Paglusch says.

It's also key to maintain close contact, says Broadwing's Tomae, noting that his company has plotted its hosting centers "around the U.S., because we believe it is important for customers to come work at hardware, work around their applications, bring their customers in for tours."

The local touch with a national flair.

"At the end of the day, [customers] feel better if they can go meet with the person delivering the service," says Exodus' Fortenbaugh. "Even if they never go to the data center, they prefer to buy from a provider if the provider is located locally. That's just human nature, and we're in the business of serving humans."

Those humans have increasingly international demands, though, and those must somehow be taken into account.

"We want to let our customers locate their content close to their end users," Fortenbaugh says. "We definitely find it helps to have a data center located nearby. A lot of them are international so they have companies or divisions located internationally."

Speed matters Not only is the Internet growing, but broadband's increasing influence also is pushing Web hosts and their resident companies to recognize and deal with the speed issue.

"Web hosting becomes more sophisticated in a broadband environment," says SBC's Divine. "In a broadband environment, particularly in ours with DSL, we have the ability to provide high degrees of quality of service, improved latency and so forth within that last mile of DSL service."

This happens, she says, even before the traffic reaches the Internet. "Our DSL customers will have unique access and better access to the content that's hosted locally," she says.

Broadband will make a difference - when broadband catches on, says Verio's Brophy. "Broadband is a huge enabler for businesses," he says. "They're much more satisfied about the experience that end users have when they come across a broadband connection."

Thus, he says, Web hosts would have to ensure that their customers could handle these increasingly demanding end users. "When people hit the return key on an application, they want to see instantaneous screen refresh on their application. That will only happen if we continue to blow out these broadband networks," he says.

Verio, he says, is excited but cautious when it comes to broadband.

"We're just seeing some hiccups in the industry right now where the people who are trying to do this are maybe not as well equipped as they should be, or key suppliers along the route have not been very helpful. But we're still very bullish on that value proposition," he says.

SBC's Divine thinks that broadband could even facilitate a change from conventional Web hosting to applications hosting.

"A large company might choose to have a customer relationship management application hosted for them remotely [and] accessible by all of their employees. That's an opportunity enabled by broadband," Divine says.

Because broadband consumers become accustomed to quicker content access, it changes the way the Internet works, the way companies supply content via the Internet and the way Web hosts deliver services to those companies.

"Things like DSL and cable are really an important element in what we're doing in hosting," says AT&T's Proctor. "They create the framework that makes a lot of the content that we're seeing people hosting with us possible."

Add that to the rest of the Internet buzz - more e-commerce, more conservative companies plunging liberally into the Internet, more end users tapping the Web - and it means big business for Web hosts next year and beyond.

Web hosts make sure everything's locked up tight Being a good Web host means more than just having the latest hardware and software and making it easy for customers to start doing business on the Internet.

"In reality, a business really needs to guarantee that round trip for that user, the access, the [point of presence], the network, the data center, the access with a VPN, through firewalls to the enterprise LAN and then back to the user," says Kris Alexander, senior manager of business development for Genuity.

First, there's the physical security.

"You walk in, you have to sign in. There's a guard there 24 hours a day. There's substantial video surveillance. Each customer has a locked cage that has monitored and secured access," says Abha Divine, vice president of corporate strategy for SBC Communications.

Then there's the next step.

"You have security more related to uptime on the physical side of things that includes having solid racks and cages that are bolted to the computer tile floors backup power, backup generators, cooling systems, fire suppression systems and things of that nature," says Joe Bartlett, vice president of marketing for HarvardNet.

The next part is not as visible nor as seemingly logical - making sure that the customer's content is secure from attack in cyberspace.

"It's almost like a prison. You get beyond the fence and the barbed wire and you have the moat," says Keith Paglusch, president of Sprint E-Solutions. "The network is set up so people have a very hard time penetrating to the core because there are walls and firewalls and authentication processes to go through."

At this point, Web hosts can get a little outside help from companies that look at both sides of the security business, protecting end users from Web invasions and protecting the Web companies themselves from consumer invasions.

In some instances, Web host customers will go directly to a security firm such as Check Point, which will then provide software protection in addition to whatever is being provided at the Web host facility.

"We protect Web servers, critical application servers, entire networks, extranets, intranets, global workers who look to tie into those resources, and the partners of the corporations that come through their network and want to access a resource on their partner corporation's network," says Johnnie Konstantas, Check Point's product marketing manager.

The point, she says, is to build a wall between the content and those who wish to gain unauthorized admittance.

Another possibility would be to use software that has been developed for the Web host's site. "A company that specializes in Web hosting would be the kind of company that we could potentially partner with," says Stephen Trilling, director of advanced concepts and service provider solutions for Symantec. "The Web host could say to its customers, `We will offer you the ability to build a Web site, and we have this premium service that will allow you to scan for viruses. Here's the Symantec technology we're using to do this.'"

That type of arrangement, Trilling says, comes into vogue as Web hosts and their customers seek to protect content from unwanted intrusions.

"More companies are seeing the need to protect their little piece of the Internet from everything that travels through it," he says.

And Web hosts are seeing the need to protect their customers.

"We've actually developed a cyber terrorism counterattack unit which will, if a customer is under siege, jump into gear and go out and figure out who the hacker is and capture them and work with law enforcement officials as required," says Peter Fortenbaugh, senior vice president of strategic planning for Exodus Communications.

Security, Fortenbaugh emphasizes, is serious business, and it's up to the Web host to make sure that it's provided.