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Choosing a Host That Isn't Toast

By Baselinemag  |  Posted 2005-01-13 Print this article Print

The trickiest part of selecting a Web hosting provider in recent years? Trying to figure out whether it will be a survivor.

Four years ago, 1-800-Flowers.com had nearly all of its Web site infrastructure ensconced in the New York data center of Exodus Communications, an Internet hosting company that was reaping a windfall from Web-mania. At its peak in 2000, Exodus raked in $818 million in annual sales and operated 44 data centers comprising 5.6 million square feet.

But by early 2001, Exodus appeared unable to sustain its business, says Ira Sheinwald, vice president of infrastructure services at 1-800-Flowers.com. "It became very difficult to understand how they were going to support all their data centers," he says. "Never mind New York. They had these vast warehouses in the Midwest they were never going to fill up."

The Web site is critical to the flower and gift retailer—the company generated more than half its 2004 sales of $600 million via the Web—and Sheinwald wanted a more stable provider. So his team decided to outsource the site's management to AT&T, which also provides the company's toll-free phone service.

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In August 2001, 1-800-Flowers.com moved its servers to AT&T's New York center. Good timing: Exodus filed for bankruptcy protection in September 2001 and was acquired the following year by Cable & Wireless. In 2003, Cable & Wireless' U.S. subsidiary went bankrupt and last year was picked up by St. Louis-area-based Savvis Communications for $155 million.

The Web hosting industry is still nursing its wounds from the excessive investment of the dot-com era, with survivors like NaviSite and Savvis stuck with large chunks of depreciating assets. "Virtually everyone during the Internet bubble overbuilt," says Gartner analyst Ted Chamberlin. "Wall Street said, 'Go ahead and build data centers.' Then the market fell out very, very quickly."

In the resulting carnage, some customers have seen their Web servers change hands several times.

"The biggest issues have always been whom to contact and how," says Laura Marcial, director of technology and operations for a group at Johns Hopkins University's School of Medicine that publishes a Web site on infectious diseases. Marcial's team is now on its third provider, NaviSite, in four years. "We've been in an ongoing relationship with these companies, and it's been hard to figure out how things have changed hands," she says.

Going with larger companies hasn't necessarily been a safe bet, either. Sprint, for instance, shut down its unprofitable Web hosting business in June 2003 and sold most of its data centers to VeriCenter, a managed hosting provider in Houston.

"In 2001, there really wasn't one hosting company that gave us perfect confidence," says Michael Guzzi, manager of electronic products at reference publisher Merriam-Webster. "Anybody we went with, we realized, would be kind of a risk."

After evaluating various providers—including the ill-fated WorldCom, which filed the biggest bankruptcy in U.S. history two years ago—Merriam-Webster selected AT&T. Even AT&T is suffering its own financial woes, carrying $8.9 billion in debt on its balance sheet, but it has remained a solid player in the Web hosting business.

Despite the Web bust, analysts expect outsourced hosting services to hit a steep growth curve. Gartner predicts the market for Web hosting in North America will nearly triple in the next four years, from $8.2 billion in 2004 to $23.5 billion by 2008. If history is any guide, that estimate is probably wildly overblown. But any increase bodes well for the hardy bunch of Web hosters that remain in business.

The key players in the market today are large outsourced computing services providers, such as EDS and IBM; telecommunications providers like AT&T and MCI (which recently acquired Web hosting provider Digex); and Internet services companies like NaviSite, Rackspace and Savvis. IBM is the No. 1 hosting provider in terms of revenue, according to IDC, which estimates Big Blue had 25% of the $5.7 billion U.S. market in 2003. Much of IBM's business in this realm, though, is part of broader information-technology outsourcing deals, and the company actually leases space in other service providers' facilities, including AT&T's.

One big reason outsourced Web hosting remains attractive is that it lets customers build an Internet presence fast, without major capital expenditures. Instead, service providers assume the risk of procuring and managing the physical boxes, reliable hosting facilities and technical staff needed to run a high-volume Web site.

The Transportation Security Administration, formed in January 2002 to oversee security screening at U.S. airports, needed to get operations up and running as quickly as possible and didn't have time to gradually staff up, says David Zeppieri, TSA's chief information officer. A major benefit of outsourcing Web hosting through IBM, he says, is that his group only buys capacity when it's needed. "That gives us cost avoidance when we're shrinking operations," he says.

And, of course, having someone else worry about the Web site means you don't have to. Burton Snowboards, a snowboard maker in Burlington, Vt., has hosted its Web sites with NaviSite since 1999 but is now looking at bringing them in-house because it has access to cheap, fiber-optic Internet bandwidth from the city of Burlington. But Brad Alan, Burton's Internet project and development manager, says his group may not be up to the task. "We're just not sure we're ready to handle the 24/7 monitoring," he says. "It comes down to manpower."

The most important part of negotiating with a Web hosting provider is clearly delineating who's responsible for handling what, says John R. Murphy, director of E-Gov solutions support for the U.S. General Services Administration, which outsources the operational management of the FirstGov government information site to AT&T. "When you're going to turn over a major part of your business to someone else," he says, "you have to be very specific about what you need them to do."

Group Dynamics: Web Hosting

Web hosting data-center space, North America (estimates in lighter blue)

What It Is: Outsourced services for maintaining public Web sites or other Internet-based applications, such as streaming video and audio.

Key Players: AT&T, EDS, IBM, MCI, NaviSite, Qwest Communications International, Rackspace, Savvis Communications, Verio

Market Size: $8.2 billion in 2004, North America (Gartner)

What's Happening: Consolidation has whipped through the sector, which remains extremely competitive. Some providers are still struggling to become profitable.

Expertise Online: WebHostingTalk.com provides dozens of active discussion forums on topics ranging from technical issues to Web site design.

Companies in italicized type are featured in dossiers this month.

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