This story appeared in the July/August 2004 issue of Web Host Industry Review magazine. Click here to subscribe for free.
August 24, 2004 -- (WEB HOST INDUSTRY
REVIEW) -- For some companies, ISPs and other service providers
especially, operating on the fringes of the Web hosting industry,
moving into the business of providing the service themselves is just
the next logical step. But it takes more than a modicum of finesse for
such a company to broaden its focus while avoiding conflicts that could
turn customers into competitors.
Since Bravenet Web Services Inc. (bravenet.com),
of Parksville, British Columbia, was launched in 1997, its core
business model has been to offer free services to webmasters, with
ad-based revenue support and upgraded premium services.
With Web hosting always a top concern
among users, Bravenet made a perfect advertising vehicle for many
hosting firms. Recently, however, the company decided it was time to
add Web hosting to its own product offering.
Bravenet says its motivation for entering
the hosting business came primarily from customer feedback. It already
offered just about any tool or service imaginable for Web sites. The
missing piece of the puzzle was Web site hosting itself. Prior to
launching the hosting solution, the company had been running a
co-branded model on a reseller basis for some time. It found, however,
its options were limited in how it presented and priced the packages,
what those packages included, and how it dealt with customer support.
"By entering the market ourselves, we
were able to provide the services our customers wanted, without
third-party considerations and completely on our own terms," says Bruce
Whitehead, director of business development at Bravenet. "With the
addition of ad-supported and paid hosting and its associated domain
name registration services, we have increased both our range and volume
of free and premium services."
The transition, according to Whitehead,
has been smooth and Bravenet has maintained all of its former
relationships with both providers and advertisers.
"We appreciate that the scope of services
relative to this market is very wide," he says, "and that consumer
demand dictates that we maintain a board range of options, which allows
us to continue marketing related offers from our sponsors and
partners."
The company avoided any possible
conflicts with advertisers that offer hosting by careful market
positioning, as Bravenet itself phased out the co-branded offering in
favor of its own hosting service.
"Phasing out the co-branded service was
accomplished with relative ease, as we assimilated the former brand
into our new service to allow existing users the ability to maintain
their former sites, as well as review our new product," Whitehead says.
A company making that kind of foray into
Web hosting is just the kind of customer sought by a service provider
like InQuent Technologies (inquent.com) of Toronto, Canada, a company that recently went through a different sort of transition in its relationship with customers.
InQuent started as a retail Web hosting
provider in 1997, and two years later broadened its offering to include
wholesale hosting. It remained in both businesses until mid 2001 when
SBC (sbc.com) invested in the company.
As part of that deal, the roles were divided. SBC, having the big brand
and marketing dollars, focused on the retail space, and InQuent became
more wholesale focused.
When the arrangement with SBC ended in
March 2002, and InQuent was back on its own, the company sold off its
retail base to focus solely on the wholesale business.
"We found that being in both businesses
meant that we were competing with our wholesale customers. And that was
a difficult position to be in," says chief executive officer Kelly
Hagen, who led the transition to a single business focus. "By exiting
the retail business we were able to avoid all of that channel conflict.
It allowed us to more closely focus on R&D and the technology. We
no longer needed to have that retail marketing arm of focus on customer
acquisition and the money required for that kind of strategy. Our
expertise has always been on the R&D side and we decided to focus
on the things we thought we were good at because it made more sense.
"The retail provider really needs to have
a strong retail marketing focus where ours is very much a
business-to-business sales force type focus."
Today, InQuent counts among its private
label hosting customers some of the top companies in the global
communications business, including AT&T, Cox Business Services of
Atlanta, Bell Canada, DSL.net, Radiant Communications and Telecom New
Zealand.
"We are going after service provider
customers and that's a very different process than the retail market
where customer acquisition and customer retention are really big
issues," Hagen says. "You generally have to spend a fair amount of
money in brand management and advertising if you want to develop a very
sizable base."
InQuent, which is part of a small group
of managed service providers owned by Mallory Ventures Inc. of
Littleton, Massachusetts, has to be capable of supporting more than one
retail strategy and has built an open technology to integrate with
other systems.
"The key differentiator for us," says
Hagen, "is the very high degree of flexibility we can offer to allow
our customers to do whatever they want to do and what's best for their
markets. I think we are pretty unique in that sense among other service
providers that are following this type of model."
InQuent's pull away from the retail
hosting business is a departure from the more common hosting strategy,
in which service providers approach resellers as one sales channel
among several, or many.
More in tune with the traditional setup is Burlington, Massachusetts-based BizLand Inc. (bizland.com), which also offers its Web hosting services through a reseller program.
Though BizLand provides retail hosting as
well, the company only offers those services through its Web site, says
Eric Rayleonard, director of channel marketing.
"We don't have a lot of channel
conflict," he says. "We don't have a direct sales force, we have
customers who go only directly to our Web site. We are going after
fairly different customers. Our resellers are typically in niche
markets or designers who have customers who don't know anything about
the Web."
Targeting a smaller, simpler type of
reseller customer, BizLand provides non-branded support and billing,
through its private label hosting program, to Web designers, Web
developers and also small business portals that are looking to provide
shared hosting with round-the-clock support.
One of the interesting impacts the
reseller relationship has had on the Web hosting business is that it
allows companies from all kinds of areas to add Web hosting to their
offerings, even if those offerings are as different from hosting as
offline retail sales.
One of the newest — and biggest — entrants into the Web hosting business is Sam's Club (samsclub.com), the wholesale division of Wal-Mart, the world's largest retailer.
The company announced in early June that
it had formed a partnership with private label supplier Vista.com of
Redmond, Washington, to provide an inexpensive hosting solution for
small businesses.
The major selling point of this kind of
outsider Web hosting setup, and really the whole draw of the reseller
model, is its ability to marry the two sides of a technology offering;
on the one hand, the solid and reliable technology foundation, and on
the other hand, the popular brand, the massive marketing budget or,
perhaps most significantly, the expertise in a specific market niche.
Without reseller partnerships, that marriage is seldom executed well by
a single organization.
Bravenet, probably the best example of a
company with an existing client base among whom the added-on Web
hosting offering is almost certain to be a hit, is relying on that
variety and specialization of Web hosting customers' needs to dodge the
conflict that might have arisen with advertisers.
"We learned that no single provider can
completely dominate the hosting marketplace," says Bravenet's
Whitehead. "There are many niche markets to exploit, and to us that
means we can continue to expand our services to maintain a growing
client base, while continuing to provide marketing exposure to other
providers. Obviously, it's a lucrative business and competition is
strong, but we have not seen a need to completely shut our doors to
promoting alternative solutions. It's just a matter of constant
research and analysis to determine where the boundaries lie."
