This story appeared in the March 2005 issue of Web Host Industry Review magazine. Click here to subscribe for free.
March 22, 2005 -- (WEB HOST INDUSTRY REVIEW) Brent Oxley was a college freshman when he dropped out of school three years ago to devote himself full time to HostGator (hostgator.com), the Web hosting business he started in his dorm room. Last year his Boca Raton, Florida-based company, which focuses on the global reseller market, grew by 370 percent.
"The Internet is our generation's gold rush," he says. "It is one of the few frontiers left where anyone can make it big with the right mindset and a ton of hard work. Web hosting is a worldwide market that can be run from anywhere as long as the servers are located in a data center with a good network and great uptime."
When searching for a data center in which to colocate his business Oxley sought a profitable company that would be around for decades. He chose Dallas-based The Planet (theplanet.com), not only for its solid reputation, network and professionalism, but also for its location in Texas, a state that takes its Web hosting seriously.
"Texas is home to many of the largest and most known data centers," says Oxley. "When it comes to network costs and stability, Texas seems to be the premier location."
He's right about Texas. The Lone Star State is a hosting hotspot, a status due in part to an entrepreneurial spirit reinforced geographically by a central location on the Internet backbone, and by pro-business drivers such as lower real estate costs, favorable tax rates and a skilled technical labor force.
At The Planet, where HostGator's servers reside, chief operating officer Lance Crosby, Esq., says his company owes much of its success to the state in which it operates.
"Our fast growth has been directly attributed to the competitive advantages we possess here in the Texas area," says Crosby, "in terms of data center space, bandwidth, latency, technical talent and overall lower cost of doing business."
Located in the central United States, Texas has the advantage of reduced latency to each coast. The average ping time is roughly 20 milliseconds to the San Jose, California and Ashburn, Virginia, areas, commonly referred to as the east and west Metropolitan Area Exchanges.
"Our core infrastructure," says Crosby, "resides within Equinix in Dallas where we connect to 14 different carriers with over 25 gigabits per second of connectivity."
In the United States, there are several points of peering where the vast majority of bandwidth providers converge to exchange packets. Dallas is one of those key exchange points where numerous providers operate significant hubs and exchange points, allowing for increased performance over other areas.
"With numerous companies hosting extremely large server farms, Texas has a distinct advantage over other states. Companies like The Planet, Rackspace, EV1, EDS, ACS, IBM and more have significant data center footprints in the Texas area, lending to increased bandwidth volume and reduced cost per megabits per second," Crosby says.
Crosby, who holds advanced degrees in finance and management and who is an attorney active in the State Bar of Texas, says real estate costs in Texas are considerably lower than in comparable metropolitan areas nationwide. The Planet, which has been in business since 1994, currently leases three data center facilities at rates that amount to roughly 50 percent of the prevailing rates in San Jose, Ashburn and New York areas.
"Real estate pricing in Texas continues to remain lower than the national average, although distressed data center opportunities are beginning to subside," says Crosby, "The Planet will remain competitive in our overall pricing as we further expand in the Texas area and capitalize on the lower market rates." As a pro-business state, Texas follows closely behind Delaware in terms of focusing on business needs. Low property taxes, no state income tax and no sales tax on out-of-state Internet services all are beneficial to delivering services over the Web, he says.
As for a technical labor pool, Dallas is known for its abundance.
"In the dot-com rise, the market gave rise to large companies like Nortel, Texas Instruments, Allegiance Telecom, Verio, Data Return, Sprint, Exodus, Epic Realm and more, bringing a substantial technical talent pool to North Texas," says Crosby. "In the down market, a ton of talent hit the streets in Dallas, allowing The Planet to hire the best of the best. In recent years, the talent pool has stabilized, allowing salaries to rise, with competition among job applicants. The Planet feels confident the technical talent available in the North Texas area will continue to be stable and allow for continued growth well into the future."
The Planet, which delivers enterprise level hosting services to the SMB market, has seen explosive growth, with demand exceeding 1,500 new dedicated servers in each of the past 12 months.
"We have also seen rising demand in the server-on-demand market as enterprise customers reach out to fulfill excess computing needs," says Crosby. "We believe the entry level and mid-market dedicated server market will continue to grow rapidly as the SMB market shifts to outsource technology. Our ultimate goal is to be the new utility to the Web, a turnkey bundled affordable hosting solution for the SMB marketplace."
Twenty-one miles to the west of The Planet is the Bedford, Texas headquarters of C I Host (cihost.com), a managed Web hosting and colocation solutions provider founded in 1995. Texas offers fertile ground for businesses to grow, says C I Host CEO Christopher Faulkner.
"Dallas-Fort Worth is one of the world's primary breeding grounds of ideas and innovations in technology," says Faulkner, who almost sounds like a salesman for the state. "Texas is the second largest producer of electronic components and Richardson's Telecom Corridor is the nation's highest concentration of telecommunications firms, with more than 350 located within a two-square-mile area.
"Austin is home to Sematech, one of the nation's premier research consortiums. Houston's Advanced Research Center, which focuses on scientific research and applied technology development, benefits more than 150 companies annually. San Antonio's Southwest Research Institute is the country's third largest independent, non-profit, applied research and development institute."
In general, the Texas economy is one of the healthiest in the nation. A key to economic growth has been Dallas-Fort Worth International Airport, home of American Airlines, the nation's largest carrier. The Fort Worth Alliance Airport was the first industrial facility of its kind specifically built to meet the needs of purely business cargo.
A growing population, nearing 23 million, helps stabilize the state's economy. Texas ranked fourth in job creation last year with 9,400 new jobs in the professional, scientific and technical fields.
The state also has the third highest growth rate in small business, a market expected to explode in the next few years.
"We're definitely a major regional hub for telecommunications infrastructure," says Faulkner. "Verizon recently began rolling out its fiber optics initiative deploying 440,000 feet of cabling in suburban Dallas. They said they were going where the competition is, and they've found the right spot."
Austin is recognized as the most "wired" city in the nation, and Texas is home to several fiber cable developers, distributors and suppliers. Texas Instruments, headquartered in Dallas, is the world leader in digital signal processing and analog technologies, the semiconductor engines of the Internet age.
Texas is more affordable than New York or Los Angeles. Living expenses are lower and there is no corporate sales tax. The average cost of real estate in the North Texas area is $12 per square foot, far less than the costs in the big three cities of New York, Chicago and Los Angeles.
Trained technical talent is being turned out by the state's nationally recognized tech schools, such as DeVry University, Texas Tech, Westwood, Texas A&M, ITT Technical Institute, Universal Technical Institute and the Texas State Technical College network, notes Faulker, who sits on the board at DeVry University.
Faulkner also credits the pro-business climate in Texas with fostering the growth in technology businesses.
Texas recently instituted major reforms in workers' compensation that lower the employers' costs substantially. The state ranks as one of the lowest in business taxes as a percentage of total state tax revenue.
And Faulker says his own company's research shows the small to medium-sized business market in general is poised for growth.
In January, C I Host polled 20,859 SMB clients across the United States. Twenty-three percent say they expect to increase their labor forces and 53 percent plan to increase their overall IT spending. Sixty-six percent of respondents plan to increase capital expenditures in 2005, while 53 percent expect to spend more on Internet marketing specifically. Sixty-one percent plan to rebuild or revamp their Web sites in the coming year. Overall, the majority of businesses expect the US economy to improve. Sixty-eight percent of respondents predict 2005 will be a good year to expand their businesses, and 4 percent expect gross revenues to increase.
The optimism is encouraging to Faulker, who already has data centers in Los Angeles and Chicago and plans to open another facility in London.
Despite Dallas-Fort Worth's stats as the state's technology nexus, Texas's Web hosting isn't confined to its borders.
San Antonio, 280 miles to the south, is home to the headquarters of Rackspace Managed Hosting (rackspace.com), one of the fastest-growing managed hosting companies in the nation.
"Rackspace Managed Hosting was founded in San Antonio in 1998," says Annalie Drusch, the company's director of corporate communications. "Texas, particularly San Antonio, has been an excellent location in which to start and grow a hosting company and it provides us with great advantage in terms of costs, talent pool and operational efficiency. All of these advantages contributed to Rackspace's ability to achieve profitability in 2001 and have spurred our growth rate of 50 percent a year to more than $100 million in 2004."
In addition to its central location and fast access to the entire US, she says, Texas is the crossroads to all the Central and South American markets. Rackspace has five data centers with two in San Antonio, one in Dallas and one each in Herndon, Virginia and London.
"While we have state-of-the-art facilities in other parts of the country and the world," says Drusch, "Texas provides a cost benefit not only in terms of facilities, but also in operational costs. Any company running large data centers knows that power consumption is a major expense, and Texas offers an abundance of inexpensive electricity."
There is no shortage of technical and service-oriented talent in San Antonio due to the presence of multiple military bases and many nearby universities and colleges. And Rackspace dips deeply into that pool, employing 515 people across all its data centers.
"We also recruit heavily from nearby Austin and Dallas," says Drusch. "Texas has afforded Rackspace a true recruiting advantage, which has enabled us to add more than 100 employees in the last 12 months."
Houston, 190 miles to the east of San Antonio, is the home of VeriCenter (vericenter.com), a leading enterprise managed IT services provider. In addition to enterprise hosting, VeriCenter provides colocation, disaster recovery and centrally delivered managed services. The company posted revenues of $38.3 million with positive EBITDA in 2004.
"Due to our rapid growth, we've added significantly to our technical support team with the hiring of a number of experienced industry veterans," says Eric Mattson, chief financial officer of VeriCenter. "Much of that talent was in our backyard, but we haven't limited ourselves to local searches because our number one driver is hiring the most qualified personnel."
Last year, VeriCenter successfully transitioned and fully integrated the managed hosting business it acquired from Sprint Corp. in late 2003.
"Our real estate advantage has not been limited just to Texas," says Matteson. "The post dot-com economic conditions have favorably suited VeriCenter's overall business strategy and provided the company the opportunity to attain prime real estate with IT infrastructure at much reduced rates."
Building state-of-the-art data centers is typically cost prohibitive for a relatively new company, but when VeriCenter acquired Sprint's hosting business, it also picked up four data centers in the deal. Matteson says the acquisition "has allowed VeriCenter to become a recognized nationwide provider of IT infrastructure and managed services."
Across town, EV1Servers (ev1servers.net) CEO Robert Marsh says he didn't consider Texas's favorable business climate when he founded his ISP Everyone's Internet in 1998. He had what might be called an altruistic motive.
"My initial goal in starting the company was to bring affordable Internet access to my home town," he says. "And while we have greatly expanded the services we offer and the customer base we serve, I still consider myself as much of a Houstonian as ever. In fact, one of the most satisfying aspects of EV1's success is the ability it's given me to give back to my community."
Last Christmas, EV1 underwrote a quarter of the budget for Elves and More to deliver 20,000 bicycles and 30,000 toys to underprivileged children in the Greater Houston area.
"I think EV1's ongoing growth and profitability are proof that Texas is an excellent place to do business," says Marsh. "There could very well be places that offer cheaper bandwidth or real estate or labor, but I have no plans to move the company."
EV1Servers is in its sixth year of growth and profitability, focusing primarily on dedicated hosting. It has more than 100,000 square feet of space in two data centers in Houston that are connected to seven backbone providers through 22GB per second links. The company manages more than 20,000 Linux and Windows servers.
Just as geology blessed Texas with petroleum riches, the Lone Star State's proximity to the nation's Internet backbone has given rise to a hotbed of hosting. From Houston to San Antonio to Dallas and other selected spots, it is evident that hosting has a strong foothold to the frontier that HostGator's Brent Oxley calls "our generation's gold rush."
