Let Me Be Your Host

With the increasing use of broadband services by SMBs and their customers, and the growing importance of online marketing, the time is ripe for service providers to deliver on SMB demand for Web hosting and related services. Indeed, many SMBs now are asking for — or at least willing to consider an investment in — more functional Web sites with interactive features with the ability to make a measurable contribution to marketing and sales activities.

A July 2006 Yankee Group study reports that of the approximately 6 million small U.S. businesses, more than 35 percent don’t have Web sites. But for the SMBs that have or plan to launch Web sites, those Web sites are becoming more interactive and e-commerce-enabled — with about 39 percent of U.S. SMBs conducting e-commerce on their Web sites as of 2005, an increase of 5 percent from 2004.

But despite the expected growth, SMBs typically aren’t willing to spend a whole lot on things like hosting, e-mail, e-commerce, search engine optimization and interactive applications like database functionality, says Paul D. Engels, executive vice president and chief marketing officer at Hostopia, which offers Web hosting services for SMBs exclusively on a wholesale basis to other service providers such as telcos, cablecos, ISPs and domain registrars. In fact, most SMBs spend just $10 to $30 per month on such services, and service providers typically are seeing a take rate of between 5 percent and 10 percent for such services, he says. That means that service providers typically need to amass large amounts of SMB business in this realm to get the scale they need to justify creation and delivery of such services.

That’s the hook for service providers to outsource this Web hosting functionality to companies like Hostopia, Verio Inc., Web.com, XO Communications Inc. and others.

Engels says Hostopia gets economies of scale from offering such services to tens of thousands of Web service users through its reseller customers like Bell Canada and Covad Communications Group. He adds that while Web hosting for the SMB crowd may be a low-margin opportunity for Hostopia’s service provider customers, it’s also a chance for them to add value for their SMB customers and to reduce churn on their higher-margin but more commodity-type services.

“You need a bundle of services and [to] offer increasing value, because it’s like you’re leaving money on the table if you already spent money acquiring the customer — so every other service you offer to that customer is just gravy,” notes Barb Branaman, vice president and general manager of hosting for XO, which also offers a full suite of white-label Web hosting services (in addition to selling such services direct to business customers).

Of course, getting a Web site up and running for the SMB is the first order of business for service providers catering to this group. So most Web hosting companies offer tools to enable SMBs to create their own Web sites. For more sophisticated Web sites, professional services are usually available.

Hostopia offers EasySiteWizard, a tool to help SMBs create Web sites without having to have knowledge of HTML. Hostopia’s TemplateGallery, meanwhile, is a more sophisticated template for Web site design. It supports Flash, JavaScripts and other functionality. Engels says last year TemplateGallery included 1,000 templates, but that now it’s up to 2,600 and it continues to grow.

TemplateGallery offers several special-purpose tools for various vertical industries, adds Engels. For example, florists will find a variety of Web-ready graphics and button styles featuring flowers that they can use to build their sites, he says.

For those SMBs that want a little more support, Hostopia is establishing a new division that will offer the services of Web site designers using TemplateGallery to work with SMBs under the service provider’s name.

XO, which also offers build-it-yourself tools, has a partnership with Web site design firm Webimage, which can help businesses with their Web sites.

Of course, search is a hugely important area in Web hosting these days, because it doesn’t make any sense to have a Web presence if customers can’t find the site.

So XO offers ad words from Google so that SMBs and other businesses using the XO Web hosting service can identify the search words that best match their offerings, says Branaman, explaining that if a Web site visitor clicks on the Google ad, the SMB pays — if not, they don’t. XO also offers its wholesale customers the ability to offer pay-per-call, which means the SMB pays only if someone actually calls them.

Hostopia, meanwhile, soon will release an automated search engine that analyzes a business’s Web site for keywords so the SMB more successfully can promote their presence on the Web with better search results on the Web’s search engines, says Engels. “It’s no longer enough just to launch Web services, [service providers] need the most competitive services to enable them to be leaders,” says Engels.

While Web hosting would seem to be specific to a company’s face to the outside world, in fact, it also encompasses Web-based tools that SMBs and other companies can use internally to increase productivity. For example, e-mail — which has become the centerpiece of business communications — is a key piece of Web hosting.

“We have an integrated system where e-mail and hosting is tied together,” says Branaman. “Our users can split their DNS (domain name system). But most customers use our e-mail and our hosting together, it’s through the same control panel and using the same disk space.”

XO offers productivity tools like open-source blogging, the ability to map their Web space to make it look like their desktop and use that as a backup or a way to share files with other people. XO offers these features for free, Branaman says, but they can drive businesses to use more resources like disk space and database utilization, so they might upgrade to a higher-end plan, which works to increase service provider revenue.

Junk mail filtering and virus filtering also are offered free as part of XO’s Web hosting services, Branaman says, but for $2 per month per e-mail box, end users can get premium filtering, which allows the company to customize how different e-mail is treated. “It’s such a productivity tool for [businesses] to have less spam, and [it decreases] virus problems, which are usually disguised like spam,” she says.

On the e-mail front, Hostopia is working on collaborative e-mail, since many businesses find Exchange Mail to be expensive, says Engels, explaining that collaborative e-mail is a means by which small businesses can use e-mail to share calendars and contacts with colleagues and businesses partners.

Branaman says extending e-mail into a collaboration application is a logical step, noting that XO could provide the wrapper for user authentication and billing so the user or XO could bring in a new third-party app with one authentication and one billing session.

Outsourcing Web-based services

Yankee Group forecasts the U.S. Web-based professional services market will increase from $2.9 billion in 2005 to $4.1 billion in 2010, resulting in a CAGR of 7 percent annually during the five-year period. Web-based services represent the opportunity for Web site development services, search engine optimization, Internet marketing services, sponsored search consulting and customization services.