The Host With the Most?
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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