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Web hosting in one of its various guises should be
considered by any enterprise embarking on e-business.
The potential for cost savings and benefits through
reaching customers and coming to market faster is
huge, but there are also great risks. The principal
danger is of choosing a Web hosting provider that
is either unsuitable -- perhaps being unable to deliver
the level of service you require -- or worse, about
to go bust.
The dangers of the latter were demonstrated by the
high-profile agonies suffered last year by PSInet,
the company previously touted as the "Internet
super-carrier", which is now threatened with
bankruptcy. The problem with the Web hosting business
is that to make it viable, major investment has to
be made up-front in data centres, staff and network
infrastructure, in the hope that the customers will
then come flocking in.
Although rapid growth in Internet use continued through
2000 despite the dot-com debacle, PSInet suffered
because it was over-ambitious in its projections and
a little ahead of its time. Caroline Bryan, Web hosting
analyst at Datamonitor, says, "It over-reached
itself and sunk too much money into its IP network
and datacentres, while the services did not take off
quite as expected,"
This showed that size alone is no guarantee of success
in the Internet service business, so the question
is how can a potential Web hosting customer make sure
it is entrusting its Internet shop window to the right
provider. After all, in the case of full outsourced
Web hosting, an enterprise might be relying on the
service provider to collect a sizeable proportion
of its revenue through e-commerce, as well as to deal
with customers.
According to Bryan, hosting companies that have spun
off from some existing large players in telecommunications
or systems integration are better placed, because
they have independent revenue streams and so rely
less heavily on the goodwill and patience of their
financial backers. The best UK example is BT Ignite,
said Bryan, which although still losing money overall
has a huge existing network infrastructure it can
call on, as well as BT's IT solutions business Syncordia
and its outsourcing company Syntegra.
This point is echoed by other analysts, such as consultant
and analyst Ovum's ISP-watcher Henning Dransfeld.
"ISPs with a telco background can leverage their
telecom network and are in a good position to offer
good quality of service," he says. This includes
not only the big incumbent carriers such as BT, but
also the likes of NTL with cable TV networks and in
future others exploiting the unbundled local loop.
It can be argued that BT has over-reached itself with
the huge investment in 3G mobile networks on which
there will be no immediate return. There is also the
little matter of the $1.25bn ([pound]8.5bn) it is
spending jointly with US telecoms giant AT&T over
three years in setting up the global network of at
least 44 data centres for the Ignite Web hosting services.
But the principal risk is of takeover rather than
collapse, with hopefully less disruption to the hosting.
In any case, at least according to BT Ignite's vice-president
of sales and marketing Perses Sethna, the company
is on target to start making money on Web hosting
by 2003. Some of the individual country businesses
making up BT Ignite are already profitable, for example
I.net in Italy, which recently had a successful initial
public offering with BT retaining a 50.8% stake. But
other Ignite businesses, including the UK operation,
are still making significant losses.
Expansion
The Web hosting story began in the US with basic co-location
services and has since expanded into more managed
offerings, including up to full outsourcing and application
provision. There is now a broad spectrum of services
on offer, but most analysts assign these to just three
categories.
For this reason, others such as Worldport only provide
dedicated services. Few if any ISPs in the hosting
business want to confine themselves purely to co-location
because, as research director specialising in ISP
issues at the Gartner Group Eric Paulak points out,
it delivers a relatively poor return per unit of space
and in locations such as the City of London, where
property is expensive, it is only just viable.
Matching hosting providers to these categories is
easier said than done, as suppliers are reluctant
to admit that they are only in the co-location arena,
even if that is all they are capable of providing.
BT Ignite addresses the entire spectrum, but Sethna
admits cheerfully that all their marketing effort
is pitched at dedicated hosting because that is where
the most money is to be made.
"If you look at the pricing for basic co-location
within the UK, it works out at about [epsilon]100
([pound]65) per square foot," says Paulak. This
figure can be increased by perhaps 25% by offering
some additional management, for example of the IP
routers, but pales into insignificance when compared
to the pickings that can be made with dedicated services.
The gulf is not difficult to estimate, As a rule of
thumb, according to Paulak, a business-class hosting
service with management will cost between [pound]100
and [pound]400 per user per month, depending on location
and level of sophistication, with the average being
around [pound]200. A typical Web server can handle
50 users and 12 such servers can be accommodated in
a rack occupying nine square feet in a room. This
equates to about [pound]10,000 per server per month,
or [pound]120,000 per rack per month. Dividing by
the nine square feet, this comes to about [pound]13,500
per square foot per month, which is a good 100-fold
increase on what can be earned with co-location.
The result is that dedicated services are that much
more expensive for customers, but when you put into
the equation the cost of managing the facility and
acquiring the necessary in-house IT skills, it may
look more attractive. For a mid-sized company with
100 users, the cost of a dedicated Web hosting service
would be [pound]240,000 per year on this basis.
So despite these costs, there is a strong swing in
demand from co-location towards dedicated services,
according to Sethna. But because of the huge cost
differential, a number of larger enterprises that
already have most of the human resources needed to
run a Web site will at least start off with co-location
to test the waters. To cater for this, many business
sector ISPs, such as UUnet, will continue to offer
co-location services for the foreseeable future, almost
as loss leaders to lure customers into their Aladdin's
cave of more lucrative services. As Bryan notes, "Web
site hosting is one of the first things that a company
is quite willing to outsource."
Dedicated services
Basic co-location is technically far easier to provide
and is more of a vanilla service, with fewer differences
between the contenders. But when it comes to dedicated
services, some providers are more capable than others,
both in their ability to offer the high levels of
availability needed for e-commerce and in the range
of options offered. BT Ignite, for example, can now
go beyond full outsourcing of IT to embrace customer
relationship management (CRM), "In this way we
can provide not just the technology but surrounding
services to get a company to market quickly,"
says Sethna.
This could appeal not just to end customers but also
to aspiring application service providers (ASPs) which
might have a sound proposition but not be geared up
to handle CRM issues on behalf of its own customers.
"So we are packaging this as a wholesale ASP
offering," says Sethna.
Some of the value-added services that a large player
can bring embrace both IT and surrounding business
issues. One is Web caching, which is particularly
important for international multinationals, where
a global enterprise might want localised content located
close to the relevant customers for performance reasons.
This in tarn requires the hosting company to have
at least a satellite data centre in each country in
which they operate.
But before getting carried away with value-added options,
users should evaluate the ability of hosting companies
to deliver maximum availability, says Worldport's
vice-president of sales and marketing Frazer Hamilton.
This cannot be achieved through resilient hardware
and communications alone, but requires attention to
the operating systems and applications as well. "For
this reason we do not use a standard operating system,"
says Hamilton. "We harden the operating system
to make it more secure, and also the applications."
The essence here is to close unnecessary routes into
the system that a hacker could exploit, using similar
principles to those applied to military-grade software
development. Now with large Web site hosting, there
is a growing need for such hardened software in the
commercial sector.
Another pressing need in Web hosting is better support
for peering arrangements between providers. Progress
is being made in basic connectivity to create faster
transmission with better quality of service along
end-to-end paths through the Internet, traversing
the domains of multiple service providers. But what
is lacking is the ability to retain information about
content during such multi-ISP transmission.
"We think new content peering arrangements are
needed to drive the industry forward," says Sethna.
"We want to be able to swap content across the
network and retain the intelligence and functionality
so that, for example, information on the consumer
is passed back to the source. Then an advertiser might
be able to have granular information of who is looking
at their content."
This may raise privacy issues, but that is another
story. Without doubt though the next chapter in the
hosting saga will address the content distribution
question.
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