Web hosts leave the lights on: A booming Internet market-and a bevy of companies that want to outsource their Web sites-lets carriers make merry

Say you throw a big party and everybody shows up. Everybody-including people you didn't invite and probably didn't expect.

Your friends brought friends, and they bought friends. Suddenly you realize you are surrounded by a large and boisterous group.

At first this seems great. The more the merrier. But before long, the party may get a bit unruly-the music gets a little loud, the food and drink run out and, worst of all, some people just won't leave when it's time to go. It's enough to make you swear off hosting your own parties ever again.

Welcome to the wild world of Web site hosting. Businesses and organizations small and large are finding that the electronic "parties" they're hosting on the World Wide Web may be a bit more than they bargained for.

What starts as a simple Web site can easily grow unmanageable, becoming a considerable drain on information technology talent, time and money, so companies are looking for outside hosts to handle the details of Web site design, production and maintenance.

And carriers are eager to help. From the largest interexchange carriers and Bell regional holding companies to competitive local exchange carriers and Internet service providers, Web site hosting is taking off as an attractive, lucrative business model.

The predicted boom in electronic commerce leads some to say hosting may even rival or surpass Internet access as a revenue generator for telcos. "Hosting is one of the primary opportunities," says Eric Paulak, research analyst for network business management at Stamford, Conn.-based The Gartner Group. "Internet access by itself is such a low-margin business that it will not provide the revenue growth most carriers want, so if they're not looking at hosting now, they will soon."

The Web hosting market is exploding, agrees Sam Boonin, product manager for Web hosting services at Southwestern Bell Internet Services and Pacific Bell Internet Services, San Francisco (Figures 1 and 2). "It is growing much faster than the Internet in general. You cannot compete as an ISP without it."

Research from New York-based International Data Corp. shows why.

The demand for hosting services is set to soar from a 1996 level of 5864 hosted sites to nearly 600,000 in 2000, a compound annual growth rate of 217%, according to IDC (Figure 3). Moreover, total Web hosting revenues are predicted to enjoy a 141% compound annual growth rate over the same period, surging from slightly more than $100 million in 1996 to more than $3.5 billion in 2000 (Figure 4).

At the same time, the cost of outsourcing Web site hosting is set to fall. An average monthly hosting cost of $1500 in 1996 should be about $500 a month in 2000, IDC says, mostly because of increased competition and advancing technology.

The news is dance music to the ears of any company thinking of outsourcing its Web site. It also has the carriers dancing to the beat as they line up to provide what companies are most likely to want in a Web host: availability, reliability, security and-perhaps most importantly-the ability to conduct e-commerce.

Popular party theme: e-Commerce "The killer app for Web site hosting is going to be products that can be sold over the Web via e-commerce," says Jim Greiner, manager of U S West's Business Web Solutions group at !nterprise Networking, Denver.

Greiner's group hosts e-commerce sites for Eskimo Pie, the Colorado Rockies and the Rock Bottom Brewery restaurant chain, as well as sites for health care companies, insurance agencies and even state lotteries attempting to boost interest, increase sales or improve customer service.

The move to e-commerce and on-line buying is a "third wave" of Internet adoption, says Chris Schoettle, director of marketing for IP value-added services for AT&T Networked Commerce Services, Bridgewater, N.J.The first wave co nsisted of companies putting up static Web pages to show their wares, hoping people would pick up the phone or fax an order. This brought about the second and current wave-an onrush of visitors to the Web. The third wave will be on-line commerce, either through direct Web site purchases or via computer/telephony integration such as that provided by AT&T's interactiveAnswers service, he says.

"Commerce is definitely the strongest play we've seen so far," says Pete Miller, marketing manager for Bell Atlantic Internet Services, Reston, Va. "Another big thing we are seeing is that streaming technology will make a difference, which could lead to more compelling types of content on the Web."

Feature-rich Web sites are driving a strong move to outsourced Web hosting, agrees Paul Hoffman, product manager for Web hosting at Vienna, Va.-based UUNet. Companies are finding it more economical to let someone else take care of the nuts and bolts of Web production and hosting so they can concentrate on their core business, he says.

"It used to be [hypertext markup language] and some scripts," Hoffman says of Web site hosting a few years ago. "Now people have chat groups within their industries or trade associations, threaded discussions, audio and video streaming, and many other things that [require] multiple servers. It is much more difficult to do on your own."

Everybody loves a party planner Streaming video, on-line commerce and multisite hosting contribute to the increasing complexity of Web site development and management, something that carriers are using to make the pitch for Web hosting.

Although UUNet still aggressively courts new hosting customers, an increasing number are approaching UUNet-once they realize how much it takes to supply a truly interactive, round-the-clock Web presence, Hoffman says. Boonin agrees, saying that once companies look realistically at the costs associated with Web design and maintenance, outsourced hosting quickly becomes "one of the easiest things to cost-justify."

"A lot of the typical customers really like the concept of outsourcing," he says. "Web hosting is becoming something their [information technology] folks don't want to handle any longer."

Boonin compares it to a company buying a PBX system rather than using Centrex services from an RHC for voice mail services. If the customer has its own PBX to program, it must continually update and maintain the system, placing these demands on in-house staff. In the case of Centrex, though, the company can rely on the telco to do much of the systems maintenance off-premises through its central or switching offices.

"I think of Web hosting as a type of 'Webtrex,'" Boonin says. "A customer wants to outsource the scaling of a system to those who know how to do it better. Customers cannot focus on the next release of Netscape and what to do about it. They can't worry about scaling up to a million or a hundred million hits a day with their site."

Schoettle agrees. AT&T's Networked Commerce Services are targeted at small and medium-sized businesses that want to take advantage of the e-commerce opportunities but might not be ready or willing to go through the expense of setting up or maintaining the necessary systems.

AT&T is trying to provide a range of services based on Web hosting and access, including site design, connectivity, scalability, management and services to facilitate on-line purchases-a complete package it refers to as Web Tone services.

Another way in which telco-based Web hosting services can serve as Internet party planners is helping design a Web site or providing the latest in technological advances. Hosting several Web sites from SBC's data center in Dallas provides not only hosting and access, but also additional hourly services for Web site design and planning.

U S West's Greiner has a staff of 15 to 20 full-time Web designers available to help clients, and he makes referrals to leading site designers and agencies.

The bar is fully stocked In addition to managing the growing complexity of Web sites, telcos say clients are looking for 24-hour availability, reliability, increased bandwidth and security-things they might not be able to provide themselves, or at least not as easily.

"We are a high-performance provider," says U S West's Greiner, noting that the new !nterprise Networking data center in Minneapolis features enterprise-scale silicon graphics servers, various flavors of the Unix operating system, Oracle databases and Netscape Enterprise development software. The data center also features dual-home DS-3 lines, meaning that if one line were somehow cut or blocked, clients would experience no service interruption. And !nterprise Networking is considering adding a third line; Greiner says he wants to make it so customers do not have to consider what would happen if their Web sites were down.

UUNet also puts reliability at the top of its list, pointing to the use of redundant network connections, mirrored site content within a redundant array of independent disks and other measures.

In terms of bandwidth, UUNet features an Internet backbone running at speeds up to OC-12 (655 Mb/s). Bell Atlantic Internet Services' Miller says RHCs will be well-positioned to provide greater bandwidth with the increasing deployment of digital subscriber line technologies, and U S West's Greiner says he is committed to making sure the carrier's Minneapolis data center meets or exceeds the speed and security levels of other providers.

In terms of leading-edge technology, UUNet's Hoffman says vendors such as Cisco (switches), Fore Systems (routers), Compaq (servers) and Xedia (bandwidth shapers) work closely with the provider's data center to design their products for Web hosting. The vendors come to UUNet to participate in early alpha and beta tests because they know their offerings will be put through rigorous tests at a site that hosts some 1300 customers.

When it comes to security, Web hosting sites offer clients the electronic equivalent of beefy gorillas guarding the party's doors.

These electronic bouncers not only use state-of-the-art secure sockets layer-based security technology and advanced encryption, but they keep a watchful eye on the goings-on at a site, providing a steady stream of reports on activity and use-24 hours a day, seven days a week. The result for clients is peace of mind.

UUNet hosting client Michael Lasky, chief operating officer of Property Channel Inc., which is developing a nationwide Realty Web site at UUNet, says, "I don't want to have to wake up at 3 in the morning on Saturday and come look at my server. They can take that worry off my mind."

BYOS-bring your own server Some telcos offer collocated servers within their data centers. UUNet, for example, recently has been promoting this option. A collocator owns its own hardware and software and gets a locked cabinet within UUNet's data center with round-the-clock access.

Collocation is "a little bit down the value chain from hosting," Hoffman says, but it appeals to companies that have already invested much in proprietary or non-standard systems and want to take advantage of UUNet's Internet backbone and security services.

Collocation is not a major segment of UUNet's hosting business, but it could grow as Web technology spreads and companies gain confidence that they can handle at least some aspects of Web hosting.

U S West's Greiner and SBC's Boonin, however, say their companies are not in the collocation business and do not intend to be. Both say they prefer to specialize in their own high-end offerings.

So many invitations, so little time With telcos claiming to throw the best Web hosting parties, how are users to decide which ones to attend?

Most vendors and analysts agree that the most critical factors involved in choosing a Web host include a company's impression of what the Web host does best and-most important-its previous experience with the service provider.

IXCs like to promote their experience and expertise in deploying extensive nationwide voice networks and services.

RHCs also claim experience in running complex networks, and because they are close to large business customers, they understand business information technology needs better than their competitors. "We are the phone company, and we know how to design complex, highly available networks," Boonin says.

The ISPs engrave their invitations with the point that they have been in the Internet business longer than anyone else. As Hoffman puts it, UUNet was passing data around the world over the Internet a decade ago, long before other telcos jumped on the Internet protocol bandwagon.

The Gartner Group's Paulak says each player has advantages, and there's probably plenty of business to go around. The traditional larger ISPs such as UUNet and Digex have done a good job of focusing on higher-level e-commerce sites, providing complex transaction and data transmission capabilities that RHCs and IXCs are only now thinking of trying to match, he says.

But don't cry for the IXCs, he says. With 10 million customers, all AT&T needs is a small percentage to build a very significant Web hosting presence. As it is, AT&T already hosts more Web sites than anyone and is well-positioned to capitalized on the growing need for Web hosting among small and medium-sized businsesses. Table 1 shows Web hosting revenues by company size.

The main reason RHCs and IXCs are not already stronger in the Web hosting market is that they have been focusing on other, bigger markets in local and long-distance telephony, Paulak says.

"With a current revenue stream of perhaps $8 billion in Web services compared with $80 billion in long-distance and $100 billion in local telephony, it's just not getting their full attention," he says.

Another issue for carriers may be that customers still do not think of them as Internet providers.

For example, according to a study by Business Research Group, Newton, Mass., only 1% of surveyed information technology managers cited LECs and IXCs as the most likely providers of third-party assistance for their intranets and Internet services. "It's a perception issue for carriers," says Joyce Thompsett Becknell, director of distributed computing research for BRG. "People still do not think of carriers as Internet companies."

The party's just getting started A carrier that ignores Web hosting opportunities does so at its own risk, however, Paulak says. Web hosting is not only a significant opportunity on its own, but could easily be an entree into the lucrative world of Web-enabled network services and application hosting.

"One trend that is absolute in business today is the idea of expansion," Paulak explains. "You are expanding in terms of where your people are going to be working, as well as in terms of where your customers are-expansion not only across the country but also across the network. Increasingly, businesses will find that they need to host services from a centralized location throughout a distributed network. This also drives the need for more network access."

Or, as UUNet's Hoffman says, "Our primary business is still access. But the direction the Internet is taking is to add more value onto everything you do. The thing that is going to drive more access and more bandwidth is the applications."

One of the Web hosting party favors that AT&T Networked Commerce Services offers is called interactiveAnswers Services. It lets a Web site visitor click on an icon that will place an outgoing call to a company rep or call center associated with the product or service being offered. On the receiving end, the rep can interact with the caller while looking at the same Web site.

At a travel agency site, for example, a customer might have questions after checking out cruise offerings. Instead of picking up the phone to make a call, the customer clicks on the interactiveAnswers button. This places an immediate call to the travel agency, and within minutes or seconds, the phone rings on the customer's desk with a travel agent on the line. The agent is connected to the same Web site as the customer and has the option of walking through the site with the customer and "pushing" new pages to guide the conversation and help the customer make cruise decisions.

Pricing starts at $295 to set up the standard service, plus a $295 monthly service charge that includes 50 transactions.

Enhanced services that let a client push Web pages to the customer's screen cost $495 for setup and $450 in monthly service charges. In each case, additional calls are charged a transaction fee and per-minute charges.

AT&T Web site customers get $100 a month off on either type of service. In addition to helping customers get the information they need, the system helps the travel agency, AT&T Networked Commerce Services' Schoettle says. When an interactiveAnswers call comes in, agents are alerted with a "whisper tone" that lets the agent know a Web site caller is on the line.

"There is a lot of research that says people who go through Web pages are much more qualified [as potential purchasers] than those who call just looking for information," Schoettle says.

And so the party rages on.