September 20, 2005 -- (WEB HOST INDUSTRY REVIEW) -- Just a few years ago, Interland (interland.com) was a Web hosting giant with a plan to dominate the business through acquisition. Then-CEO Joel Kocher's ambitious plan - which would see the company buy up dedicated hosting specialist Digital Island, shared host HostCentric, site building software firm Trellix and several other properties in quick succession - called for a year of growth through acquisition and a year of integration, followed by a sustained period of organic growth.
Several years later, in what would have been the organic growth phase of that plan, Interland stands a very different organization. After a change in CEO, and the sale of two key sets of assets, Interland is poised to embark on a new plan, more focused and less broadly ambitious.
Appointed in August, Interland's new CEO Jeffrey M. Stibel helped to negotiate the sale of Interland's dedicated hosting operations to Canadian data center operator Peer 1 Network (peer1network.com) - the final part of a new plan to turn Interland into a smaller, more focused Web hosting operation, designed to serve the small to medium-sized business market.
The assets acquired by Peer 1 - roughly 8,300 servers, 7,200 clients and three data centers totaling about 115,000 square feet - accounted for about five percent of Interland's customer base, but consumed a comparatively enormous proportion of the company's resources and attention.
"Essentially," says Stibel, "we took roughly five percent of our users that we didn't think were core to what we're focused on - which are the small to medium-sized businesses - and [moved them] with those dedicated assets."
The unburdened Interland can now pursue its new key philosophy - that SMB customers don't buy Web hosting services according to technical distinctions. In Interland's market, says Stibel, a customer wants a Web presence. The platform being used to support that presence is largely irrelevant.
"The customers don't make that distinction," he says. "We, as technologists, make that distinction. And what we were focusing on was our technology and our operation. What we are now focusing on is our customer. Our customer is interested in getting a Web presence. And they're not interested in the difference between shared and dedicated."
Interland's project is now to remove the element of technology and the level of sophistication out of the process of building a small-business Web site. Rather than focusing on technology in marketing its offerings, says Stibel, Interland will promote solutions to specific business needs - things like generating leads, branding and e-commerce.
This is not to say, of course, that the dedicated customers were cast callously aside. The assets acquired by Peer 1 Network were, says Stibel, a functioning, profitable business in their own respect. And Peer 1 expects the customers, and the unit itself, to thrive under a new system.
Originally a colocation provider, Peer 1 became involved in the dedicated hosting market through its acquisition of dedicated hosting firm ServerBeach in 2004. With ServerBeach accounting for 7,000 servers and 6,000 customers, the acquisition of the Interland assets more than doubled Peer 1's dedicated hosting business.
More importantly, says Peer 1 CEO Geoff Hampson, the acquisition added new management capabilities to the basic unmanaged server offerings of ServerBeach, making it a more suitable compliment to the Peer 1 operation overall.
"We wanted to position ourselves as the provider of choice for people who wanted to outsource their Internet infrastructure," says Hampson. "And so the next logical step for us was to have a more managed solution. We went from 'we'll supply you with the ping and the power' to 'we can also rent you a server' to 'not only can we rent you the server, but we can also manage it for you.'"
And Hampson says integrating the new dedicated hosting assets won't be the stumbling block for Peer 1 that it became for Interland.
"The key to any acquisition is a good integration strategy. And we come into this acquisition fully aware of what the challenges are. I think that, to a certain degree, Interland stumbled on the integration because they changed their strategy. And so the integration process lost steam and they put resources elsewhere."
Now, he says, just as the retooled Interland looks poised to move on as a healthy operation, the dedicated assets acquired by Peer 1 are poised to make a valuable contribution to the overall Peer 1 operation.
"The business unit that we bought is a very healthy unit. It's profitable. It's generating positive cash. There's a great team of people. But for the last 18 months or so, as Interland went through the process of designing for their strategy to get out of this business, their focus was on selling the business rather than on building it," says Hampson. "So we plan on reinvigorating the team of very skilled very capable people, changing the philosophy in the company, putting the peer 1 customer service model in play and extracting a lot of value out of these assets - these customers and these people that we've got in this acquisition."
