The Host With the Most?Written by Jason Shpik
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 level of service you require -- or worse, about to go bust. The dangers of latter were demonstrated by high-profile agonies suffered last year by PSInet, company previously touted as "Internet super-carrier", which is now threatened with bankruptcy. The problem with 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 hope that customers will then come flocking in. Although rapid growth in Internet use continued through 2000 despite 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 services did not take off quite as expected," This showed that size alone is no guarantee of success in Internet service business, so question is how can a potential Web hosting customer make sure it is entrusting its Internet shop window to right provider. After all, in case of full outsourced Web hosting, an enterprise might be relying on 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 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 big incumbent carriers such as BT, but also likes of NTL with cable TV networks and in future others exploiting unbundled local loop. It can be argued that BT has over-reached itself with huge investment in 3G mobile networks on which there will be no immediate return. There is also little matter of $1.25bn ([pound]8.5bn) it is spending jointly with US telecoms giant AT&T over three years in setting up global network of at least 44 data centres for Ignite Web hosting services. But principal risk is of takeover rather than collapse, with hopefully less disruption to hosting. In any case, at least according to BT Ignite's vice-president of sales and marketing Perses Sethna, company is on target to start making money on Web hosting by 2003. Some of 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 UK operation, are still making significant losses. Expansion The Web hosting story began in 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 hosting business want to confine themselves purely to co-location because, as research director specialising in ISP issues at Gartner Group Eric Paulak points out, it delivers a relatively poor return per unit of space and in locations such as 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 co-location arena, even if that is all they are capable of providing. BT Ignite addresses entire spectrum, but Sethna admits cheerfully that all their marketing effort is pitched at dedicated hosting because that is where most money is to be made. "If you look at pricing for basic co-location within 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 IP routers, but pales into insignificance when compared to pickings that can be made with dedicated services.
The Pros & Cons Of Hosting The Site YourselfWritten by Jason Shpik
DO-IT-YOURSELF You host Web site yourself, relying purely on in-house resources except for external connectivity. PROS: * No service costs to pay * You have total control over application CONS: * Can be difficult and expensive to maintain required expertise * You may not have an ideal physical environment * Coping with future increase in demand may be painful.
YANILLA CO-LOCATION Hosting company provides physical space and associated environmental services, including building access security, for your Web server and connectivity to Internet. However, server is yours and you manage everything else to do with it, including hardware, operating system and application. PROS: * Far cheaper than full-blown dedicated hosting, while avoiding all environmental and connectivity issues of in-house hosting CONS: * You stilt need resources to manage Web server itself including operating system and application.
CO-MANAGED This is a half-way house, in which you still look after application, but now hosting company owns and administers server and operating system, as well as providing all basic co-location facilities. This represents a split in responsibility between IT platform and application running on it. PROS: * It off-loads all responsibility for hardware and operating system, allowing you to focus on application * Cheaper than full dedicated hosting CONS: * Considerably more expensive than co-location * You still have to look after application, which is often main source of reliability problems.
DEDICATED HOSTING Here hosting company looks after everything to do with IT of your Web site, including application and even processing-electronic payments. PROS: * It off-loads all responsibility for IT, allowing you to focus purely on products and customers CONS: * Very expensive * You will stilt deal with customers and products * You may stilt have to grapple with complex integration issues involving in-house systems.
FULL-BLOWN PROCESS OUTSOURCING This is dedicated hosting with additional component of managing processes such as CRM and product pricing, in effect outsourcing whale e-commerce operation, concentrating on products or services you provide but leaving online distribution to service provider. PROS: * It off-loads some of integration issues (or all of them if you resort to total outsourcing of IT) * Fastest route to new online markets CONS * Adds even more to cost * Extends dependence on hosting provider beyond IT provision into customer relationship management, which may be beyond its core competence.