European Demand for Web Hosting Slowing, VPNs Growing: IDC

• By The WHIR, April 03, 2003

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European Demand for Web Hosting Slowing, VPNs Growing: IDC Adam Eisner, theWHIR.com

April 3, 2003 - Demand for Web hosting services among European businesses has slowed, while the number of companies seeking Virtual Private Networks is on the rise, according to a new report from research firm IDC.

The report is based on a survey of more than 500 companies from eight European countries. Each company surveyed had at least 50 employees, Internet access and a Web site.

According to the report, few companies are currently considering purchasing new Web hosting services. 72% of the companies surveyed said they would hold their Internet and Web hosting spending steady over the next year. In fact, five percent of respondents said they would move their Web hosting in-house from an outsourcing provider this year.

While James Eibisch, Research Director of the company's Hosting Services division says that while it is unlikely all the companies considering moving their Web hosting requirements in-house will actually follow through, it is indicative of recent market sentiment among businesses and consumers regarding the telecom and hosting industry.

"I think of what this apparent intention stems from is? a reaction against what end users have seen happen in the hosting industry and the alternative carrier industry over the past year," he says. "They're either keeping their options open... or they're just reacting against it."

According to the survey, 24% of respondents said they used pure-play firms for their hosting needs, and half those surveyed said they used their incumbent phone operator for Internet access. There was also an even split between the number of companies that used network service providers and IT firms for their Web hosting requirements.

Eibisch also says the perception that leased lines have become cheaper, particularly in Switzerland, Germany and the UK, where the greatest number of leased lines are used for Internet access, has also contributed to the 'do it yourself' mentality of some European firms. He is quick to warn, however, that just because leased lines in Europe are cheaper today than they were even two years ago that "the overall Internet using population is getting bigger, and also individual companies' Web sites are getting bigger and more complex," he says. "What [companies] are hosting is more bandwidth-intensive these days."

According to the survey, demand for IP-based Virtual Private Network services is on the rise sharply, with 42 per cent of companies surveyed already using IP VPNs, and another 19 per cent expected to do so by the end of the year. "It's been a massive success story in the... eighteen months of quite consistent doom and gloom in the telecom markets," Eibisch says. "I think it's one of those things that answers a genuine need, so I think that there's a genuine kind of pull from users for this kind of service."

Eibisch believes the rise in demand for VPN services will mostly benefit major global carriers and national operators in Europe, as "they are most reliant on IP VPNs, but also they're the best-positioned in the enterprise sector to offer them as well," he says. "You've got to have a regional or global backbone to be able to provide this, and it's international and multinational companies that are buying IP VPNs at the moment." Businesses also seem to be starting to realize the cost savings in IP VPNs compared to other methods of communication. "There's a very simple and, these days, proven cost argument compared with... point-to-point leased line connections to form private LANs," Eibisch says.

The survey also reported a demand for value-added services related to VPNs: 33% of the companies surveyed said they currently use videoconferencing services, with that number expected to increase by 11% next year; 17% said they currently used CDNs (Content Delivery Networks), with that number expected to increase by 10% in one year.

IDC'S European IP user survey is available at IDC.com.

Tags:  Europe  content delivery network  value-added services  EDS  ETT  IDC  Iona  NEC 

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