While some carriers are getting out of the hosting business, others are moving in and, thanks to new automation technologies, creating a profit center.
The topsy-turvy world of Web hosting continued to experience the ups and downs of the past two years right through this summer when two large carriers — Sprint Corp. and Cable & Wireless — decided to pull the plug on their Web hosting businesses. These announcements followed an April decision by Level 3 Communications Inc. to shed the hosting business it acquired as part of Genuity Inc. Computer Sciences Corp. picked up the business, along with about 100 Level 3 employees.
On June 4, Cable & Wireless ended weeks of speculation as it announced its intention to exit the IP and hosting businesses remaining in the U.S. market. “Our U.S. subsidiaries make losses, consume cash and require significant management attention. Both hosting and IP services are businesses which have limited interaction with the rest of the group and are not central to our plans,” CEO Francesco Caio said in a statement at the time. “They may have value to the right owner, but they are not sustainable for us with their current cost structure.”
Sprint followed less than a week later with the news it would shutter its Web hosting business — the first major strategic decision by new Chairman Gary Forsee. The company said it would phase out operations at eight Sprint E|Solutions Centers once it completed the migration of current hosting customers to preferred third-party providers or strategic partners.
Despite these withdrawals, there is no shortage of companies willing to pick up displaced customers. Carriers like AT&T Corp., Qwest Communications International Inc., SBC Communications Inc. and XO Communications and more traditional hosting companies like Digex, NaviSite and Verio Inc. all announced migration plans, some with catchy names designed to lure abandoned customers.
Qwest is hawking a “Migrate to Stability” hosting offer including dedicated support, new disaster recovery options and a choice of hosting sites. “Qwest’s new Web hosting enhancements further illustrate our commitment to the hosting business and providing our customers with choicedriven solutions tailored to suit their business needs,” says Pat Engels, Qwest executive vice president, products and pricing group.
Verio’s “Here Today, Here Tomorrow” Migration Plan, meanwhile, offers customers up to three months of free colocation and dedicated Web hosting services, including hardware installation and the immediate migration to an NTT/Verio data center. Verio also says it will provide up to $30,000 in site migration and related professional services free.
The companies staying in the game face some of the same issues that got their former colleagues in trouble: namely, high overhead. Carriers, in particular, have taken their lumps with Web hosting, considering it an afterthought — just another value-added service to increase customer retention. Now, however, new automation solutions are emerging to help them squeeze the margins out of Web hosting.
“What we are coming to is a seminal event for the carriers in terms of deciding what the role of managed Web hosting services is for them. I think some of them are going to declare that it is a key strategic initiative in terms of gaining account control for the small and medium business customer. It’s also a low-risk, high-margin way to increase average revenue per user,” says Scott Armour, vice president of the Americas for Sphera Inc., one of a handful of companies offering automation solutions to Web hosting companies.
While many carriers have offered it as an addon, now many are beginning to get serious about driving volumes into their data centers. Automation is enabling them to do so by offloading and speeding customer provisioning and support. Now, fewer people can support larger numbers of customers with an even greater level of customer service.
Armour likens Web hosting automation software to the e-ticket terminals at the airlines. “I am 10 times happier being able to walk up to that kiosk, change my flight, change my seat, check in, get into my flight without having to stand in line to wait to talk to a high-priced gate agent, who is going to work some god-awful mainframebased reservation system to try to serve my needs,” he says.
Armour says his company’s HostingBusiness Suite — ServerDirector, DomainDirector, ClusterDirector, ResellerDirector and Billing- Director — represents the same kind of “market changing” technology. “Our control panel technology has basically enabled that same win-win approach to Web hosting where customers can do things themselves and the hosting company saves a bunch of money and yet the customer at the end of this is actually happier,” he says.
What Sphera’s technology does exactly is enable customers to manage their core Web services like e-mail. It also enables pointand- click installation of value-added applications, such as e-commerce packages, databases, application development tools, streaming media, collaboration systems and Web utilities.
The HostingBusiness Suite also offers management interfaces to data center managers, system administrators and even resellers.
“[Besides customers], the next big group that they are now dealing with that is driving costs is resellers,” says Armour. “So, with our new modules — ResellerDirector and BillingDirector — we have taken the same concept of customer self-service and extended it from the end user up one level in the value chain so that now resellers can go in; they can define their own service plans; they can manage their own resources; they can manage their own customers — all on their own through an intuitive GUI interface without having to involve human resources from the data center or hosting side.”
The impact of such automation, he says, is a reduction in the number and duration of help desk calls and an ability to hire less expensive personnel to field those calls since they can use the same intuitive tools. “On average, we are seeing a 20 percent to 30 percent reduction in opex in terms of traditional hosting models to this automated hosting model,” he says.
In addition, Armour says Sphera customers are experiencing improved customer retention, which translates into higher profits. “After four to six months, support loads go down and profitability goes up,” he explains. “If you can get account life to go from 18 months to 27 months, what you are adding is nine months of almost pure profit on that account.”
HostingBusiness Suite is modular and licenses are granted on a per-server basis. For a midsize hosting company with a few thousand accounts and a hundred dedicated servers, it would cost around $25,000 to $50,000. At the high end, customers with tens of thousands of accounts run between $250,000 to $500,000. Armour says that the return on investment is six to 12 months, typically, but can be much less for larger installations because the incremental cost to add a server is marginal.
One of Sphera’s new carrier clients is Aliant Inc., a telcom carrier serving Atlantic Canada. Aliant, the merger of four companies, faced the challenge of consolidating four operating systems.
“We saw pretty strong growth in the Web hosting business and felt it was important that we get our services into a single platform that would allow us to better manage them, reduce our costs and provide them better services,” says David Grebenc, director of SMB and advanced services for Aliant. He says the company looked at outsourcing its Web hosting services, but decided against it after determining the costs to run its server farm were less. “When we ran across Sphera, their ability to provide the application that allows us to do Web hosting and support UNIX and NT made us feel comfortable that we could do it.”
Steve Ryan, senior manager of application engineering for Aliant, says that Sphera’s technology aided the company in being able to collapse the operating environment, and at the same time, pick up and repackage offerings so that customers were getting the same or greater value than before. In addition, it has enabled more uniform and comprehensive reporting capabilities across the customer base.
Sphera’s solution also allows Aliant to expand a channel program from two of its jurisdictions to its entire territory by offering a variety of tools to satisfy developer preferences and giving them the ability to manage their own customers.
LDMI Telecommunications Inc. is another carrier that has put its Web hosting business into high gear with automation. The company is using a new product from Sitepak Inc. called Onsite Hosting Controller to automate its shared hosting. Joe Ross, product manager for managed hosting and security for LDMI, says that the company wanted to take its three-year-old hosting business to the next level in terms of the features it could offer to its base of more than 89,000 small and medium business customers.
“In reviewing a few solutions, I found the OHC product really had some features that tailored to SMBs and wasn’t overkill,” he says. It addresses the majority of what SMBs are trying to do, he says, which includes creating a Web site, getting it online, easily communicating with customers, taking some customer information, administering their own e-mail accounts, tracking visitor statistics and generating additional revenue without additional sales people.
On the flipside, he says, OHC also offers hosting automation. “In the past, to provision Web hosting [the system administrators] would have to go to the console on our e-mail server, the console on our Web hosting server, the console on our DNS server and do a lot of configuration. Now, with the implementation of OHC, it’s fill out a form and hit a button and all of those things are provisioned automatically.”
Those system administrators are now redeployed to the company’s base of dedicated hosting clients. Ross says OHC also enabled LDMI to roll out a new product called virtual private servers, which enables the functionality of a dedicated server on a shared platform.
The shared hosting package based on OHC was released to the sales force in July and eventually will be expanded to the company’s agent channel.
“The way we have been [serving the channel], it’s fairly costly. It’s barely worthwhile to tell the truth, but once we get the reseller channel fired up with this [OHC], it’s going to be really hands off,” he says, noting that OHC gives LDMI the ability to offer resellers private-branded control panels and to offer customized hosting packages.
OHC was designed specifically for telcos and ISPs to leverage their existing infrastructures to address the SMB hosting market. “It was clear to us that Web hosting had to be part of telecommunications companies’ full-service offerings and it was equally clear that there had to be a way they could make money at it,” says Eileen Goldfarb, Sitepak CEO. “OHC lets telcos do both.”
In contrast to appliance-based solutions like those from Sphera or Ensim Corp., Goldfarb explains that OHC employs a central server model. “What we do is put a server in your data center and put our software on it, and through a technology we have developed called ‘service driver,’ it communicates with all of the servers already in the data center,” she says, noting that it can be implemented in as little as a few days or weeks.
Goldfarb says that in Sitepak’s experience, support costs can be reduced 80 percent by allowing end users to manage their own Web presence. Sitepak’s evidence comes from maintaining its own base of several hundred hosting customers. “We have worked as a hoster. We really know the hosting business,” she says.
OHC is available for a one-time site license based on the number of accounts. It ranges from $15 to $50 per account depending on volume. Most sales are in the $20 range, Goldfarb says. A 25 percent subscription fee for four annual software upgrade releases is required for the first two years and optional thereafter.
Additional features and automation not only can cut operating costs but also are expected to drive sales. “We want to give Web hosting companies the chance to attract [customers] because we have a complete set of basic, easy-to-use features that are all integrated,” says Goldfarb.
