May 5, 2003 -- (WEB HOST INDUSTRY REVIEW) -- Managed services in Europe are making a comeback after being decimated by the telecom downturn, and have helped foster recent growth in several major European hosting providers.
The collapse of several companies providing managed services in Europe over the past two years, including KPNQwest, Digex, WorldCom, and the faltering of Cable & Wireless, did not bode well for the industry. However, all signs point to strong growth for the managed services sector in coming years - albeit at a slower pace than previously expected.
A recent study from consulting house Frost & Sullivan (frost.com) expects the managed services market in Europe to reach $1 billion by 2005, and then leap to $4 billion by 2008. "The future of is by no means bleak for managed Web hosting," the company said recently. "The European Web hosting market, still very much in its infancy, is here to stay, and growth rates will develop in tandem with Internet economy trends." The company said some of these trends included growth in both broadband adoption and overall outsourcing trends.
Frost & Sullivan also pointed out that issues within the telecom industry have prompted pure-play colocation firms in Europe to re-consider their business models, which has led several firms to introduce managed services. One company that has seen some success in doing so is Redbus Interhouse (interhouse.redbus.com), a London-based high-end hosting firm. Since shutting down some of its data centers and adding in a managed services focus to its business mix, Redbus says it has seen improved results. In announcing its first quarter results for 2003, the company said it had seen "positive development" in its financial performance, with EBITDA losses falling 71% year over year and 38% between Q4 2002 and Q1 2003. The company said its improvement was "directly linked" to the introduction of managed services like firewall and security services, managed bandwidth and storage area network solutions.
But aside from introducing managed services in an effort to diversify its product range, the company said it was also responding to its customer needs "whilst still remaining focused on our core offering of high quality colocation space," said Michael Tobin, the company's CEO.
Host Europe (hosteurope.com) has also enjoyed a great deal of success in managed services recently, albeit by providing a more simplified managed product than a typical high-end, enterprise-level solution. The company increased the number of servers under its management by 1,000 during 2002, and said it has seen "strong demand" for its new high-end solutions. As a result, Host Europe has developed a strategy for targeting enterprises with "sophisticated requirements" that spend £25,000 to £100,000 a year on hosting, according to its recent annual report, and has said it believes that a great deal of potential lies in this channel. "This has been a particular priority with the high-end dedicated server range where we have enhanced our marketing activities and have introduced a field sales team to target some of the larger SME customers not reached by our current sales and marketing channels," Host Europe's 2002 report reads.
Rackspace Managed Hosting (rackspace.co.uk), a Texas-based hosting firm that also focuses on providing higher-end hosting services to larger SMEs, has achieved significant success with its managed European offering as well. The company was recently presented with an award from Frost &Sullivan for its competitive strategy, which had "yielded the most significant gains in market share during the research period," according to Rackspace. Established in the second half of 2001, Rackspace Managed Hosting Europe currently has an annualised turnover of $4 million, more than 500 servers online, and revenue growth of 10 per cent on a month-by-month basis. The company says it is the fastest-growing Web host in Europe.
The significance of managed services to a company's offerings varies greatly between companies. One firm that maybe be counting on managed services a bit more than is PSINet Europe (europe.psi.net), which has returned from the brink after issues with its bankrupt parent firm to focus on the managed services sector. With its customer base already well-represented by most major industry sectors, PSINet Europe feels that demand for outsourcing will continue to grow in 2003, and has made some moves in recent months to ensure that growth does happen. In late December, it purchased a German hosting, VPN and security solutions firm, has partnered with enterprise software company Oracle to implement and manage software for its Oracle Outsourcing customers, and recently introduced a managed firewall service as well.
While the definition of managed services clearly varies by size and scope from company to company, one thing is clear - high-end services for smaller companies that aren't necessarily large enterprises have started to gain traction in Europe. As a result, the companies that now remain following after the downturn that hit Web hosts and telecoms are poised to take advantage of a new competitive landscape that places more emphasis on managed services.
