This article appeared in the April/May issue of Web Host Industry Review magazine. Click here for a free subscription.
April 27, 2005 -- (WEB HOST INDUSTRY REVIEW) -- A series of recent announcements regarding new IT vendor and telecommunications carrier alliances, involving such companies as IBM (ibm.com), Hewlett-Packard (hp.com) and Microsoft (microsoft.com), as well as AT&T (att.com), MCI (mci.com) and SBC (sbc.com), may redefine the hosting industry. While the initial focus of these alliances is broader than hosting, their long-term implications could have a significant impact on independent hosting companies.
The first of these announcements came in December, 2004 when Hewlett-Packard and SBC unveiled a joint venture intended to provide enterprises with a "one-stop, one-call" management package that covers desktops, servers and voice networks. The companies are promising joint services to address six common enterprise infrastructure challenges: IT and telecom convergence technologies; mobile data services; wide-area networks; network and infrastructure security; business continuity services; and branch office operations and integration.
The second such announcement came from AT&T and IBM in January. The companies announced they would jointly offer a packaged team collaboration solution aimed at small and medium-sized businesses that want to buy and deploy collaboration software with integrated Internet access capabilities. The new package combines IBM's Workplace Services Express collaboration solution with AT&T's managed Internet service. Workplace Services Express provides users with team rooms, instant messaging, document management and an integrated portal that enables SMBs to share, organize and integrate information with their employees, contractors and partners. The new joint venture is also aimed at giving IBM's business partners and AT&T's authorized agents new bundled solutions to offer their SMB customers.
The third joint venture was unveiled in February between Microsoft and MCI, who promised to develop and deploy new IP-based technology solutions for enterprise customers. The new solutions will be based on Session Initiation Protocol, and will include presence-based VoIP applications, shared communications and secure instant messaging services, such as a new generation of MCI Net Conferencing powered by Microsoft Office Live Meeting. These services will enable businesses to more easily connect to employees, partners and customers using a secure portal and IP transport.
Vendor-carrier alliances and joint ventures are not new. Many networking vendors such as Cisco Systems, Lucent and Nortel have worked with carriers for many years developing new network transport services. But the latest joint ventures are helping carriers broaden their service portfolios well beyond their traditional transport network services.
These new joint ventures are part of a larger trend that has been evolving over the past two to three years as the carriers attempt to escape the brutal price competition that has plagued their traditional transport service business by adding a new generation of hosted services for their enterprise customers. These new services are aimed at differentiating the carriers, giving them new revenue streams and better margins.
These alliances also come in the midst of a major consolidation within the carrier industry. Despite SBC's plans to acquire AT&T and MCI's pending acquisition by Qwest or Verizon, none of these companies are slowing down their efforts to fortify their portfolios to better position themselves in an intensifying competitive environment.
Nonetheless, these alliances face a number of fundamental challenges.
Joint development and market ventures require tight collaboration at both the corporate and field levels to succeed. Previous alliances between IT vendors and communications carriers have had limited success because the corporate cultures within the two fields are dramatically different. They speak different technical languages, address different customer requirements, and have different operating models. These alliances also require that the partners' sales and service delivery organizations work closely together to present a single, coordinated image to their target customers.
If these vendors and carriers are able to overcome these inherent obstacles, they could create a new competitive challenge for independent hosting companies. The carriers are already major providers of Web hosting and other hosting services. With enterprises of all sizes looking to reduce the number of service providers upon which they rely, more will become attracted to those hosting companies that provide the broadest portfolios of services.
The major telecommunications carriers, with the help of a growing array of hardware and software vendors, are aggressively seeking to satisfy this enterprise requirement – a move that could squeeze out the independent hosting companies that have served this market in the past. In order to survive, independent hosting companies will need to expand their portfolios – through partnership or other means – to include additional bundled services.
