December 30, 2003 -- (WEB HOST INDUSTRY REVIEW) -- This month, we invited hosting industry leaders to a virtual roundtable discussion of their predictions for 2004. Our roundtable guests are the chief executive officers of Interland, Rackspace, Affinity Internet, and EV1Servers. We asked each to provide a short introduction as a prelude to the discussion.
Joel J. Kocher, Chairman and CEO of Interland, Inc., Atlanta, Ga., a leading provider of business-class Web hosting and online solutions to small and medium businesses. We provide exceptional customer service utilizing the best technology. As we near 1 million Web sites hosted, our success hinges on making our customers successful online.
Graham Weston, CEO of Rackspace Managed Hosting, San Antonio, Texas, a managed services provider supplying outsourced Web infrastructure to companies of all sizes running on Linux, Sun and Microsoft platforms. The company has been profitable for three years and is on pace to grow 50 percent in 2003. I expect a similar trend in 2004.
Peter Chambers, CEO of Affinity Internet Inc., Fort Lauderdale, Fla., a provider of feature-rich Web hosting solutions for the small and medium size business market. Affinity has made great strides this year, growing our customer base to over 150,000 customers and our revenue in excess of 15 percent. We project our revenue growth at 20 plus percent.
Robert Marsh, Head Surfer and CEO of EV1Servers, Houston, Texas, a leading dedicated server provider. From August 2002 to August 2003, the number of Web sites hosted on our network increased 229 percent from 142,000 to 445,000. We also became the world's lowest cost domain registration provider. I expect 2004 to be better than 2003.
theWHIR: Discuss your forecast for the hosting industry in 2004, the business climate, and opportunities for growth.
Joel Kocher, Interland: The highest growth potential will come in three areas: 1) among resellers and partners delivering Web-based solutions, 2) in the delivery of reliable dedicated servers, and 3) through the offering of fully integrated products and services aimed at the 20 million small businesses looking to make the Internet work more effectively for them. The adoption of the Internet among small business, with less than 10 employees, is going to be the real fuel for the industry.
Graham Weston, Rackspace: As the economy turns upward, enterprise IT projects once placed on hold due to budgetary constraints now have been revived. We have already seen evidence of this through the addition of many new enterprise customers. I see application service providers and system integrators as key targets for managed hosting services, as they are in great need of reliable infrastructure on which to build their applications. It is too costly and a drain on internal resources to purchase and manage your own servers.
Peter Chambers, Affinity: Web hosting companies will need to provide more than just basic Web site hosting. Feature sets and bundled solutions will be needed to entice and retain the ever-growing customer base. Additionally, partnerships providing enhanced applications will be a vital part of the value proposition. Hosting companies will need to deliver on promises, ultimately increasing their accountability, to deliver quality services. The bar is raised on applications, services and accountability - emerging players and market leaders will become apparent and will increase the barrier to entry.
Robert Marsh, EV1Servers: The business climate today is excellent. Looking forward, I see no reason why the Web hosting market - from shared, to dedicated, to managed hosting - wouldn't gather even stronger momentum as the overall economy stabilizes.
theWHIR: What are the challenges to growth in 2004, and how can hosting providers overcome them?
Kocher: Security will remain a challenge. We also see a rapid maturing of the hosting business. The marketplace of providers is moving from a niche industry with highly fragmented players to a more organized industry with best practices that customers are quickly coming to expect as a minimum. This is likely to squeeze some providers out of the market and enable stronger organizations to deliver highly reliable technology and customer service. Customer service offerings will keep the industry from commoditization.
Weston: The industry is still healing from its big black eye caused by the financial turmoil and consolidation experienced by many hosters. Too many customers have experienced poor customer support from their service provider, and now customers have difficulty identifying the good hosting players from the bad ones. As an industry, we can overcome this bad reputation by fulfilling our promises to the customer by offering responsive customer support and stable networks, all at a good price.
Chambers: One of the greatest challenges is stabilizing the customer base. Retention of the customer base will be enhanced through the delivery of a feature-rich product set and quality customer service. Educating customers on how to use the ever-growing feature sets to maximize their online presence is key to managing customer expectations. Another challenge is lowering platform costs. With the decrease of costs, customers will need to receive a greater value for the pricing.
Marsh: The hosting landscape is increasingly dynamic. We will see other established companies expand into new markets and launch new lines of products. We can't afford to be complacent - can't assume we're competing with just the usual suspects. We have to keep our eyes open to new industry players, new technologies, new ways of marketing our services. At the same time, it becomes extra important to maintain and strengthen relationships with existing customers.
theWHIR: How much more consolidation do you foresee in the hosting industry through mergers and acquisitions (M&As)?
Kocher: Some consolidation among smaller players who cannot compete is likely, however, we don't foresee 2004 as a year marked by major industry mergers and acquisitions.
Weston: Whatever activity there is will be focused in the virtual hosting market with smaller hosting providers.
Chambers: Considerable.
Marsh: Web hosting is becoming a more resource-intensive business, requiring substantial R&D, marketing, and other ongoing investments to keep up with the rest of the industry. This may create acquisition opportunities as smaller players look to exit the market or align with more established companies, but M&A transactions aren't a panacea for the parties involved.
theWHIR: What is the single most important thing you wish to say regarding hosting today and in the future?
Kocher: Consumer force is going to push nearly every business to seek an effective Web presence that generates tangible results. Someone has to develop, host, maintain and promote these sites, because many small businesses currently don't have the ability, time or money to get their businesses online.
Weston: Companies need hosting - it's the only way they can efficiently run their applications and focus on their business. But customers have a right to expect their hoster to deliver excellent customer support, 100 percent network availability, and uptime backed by solid service level agreements. For hosting to regain the trust of corporate America as the de facto method for deploying applications, we need to keep our promises to our customers.
Chambers: Hosting is on the verge of becoming a significant component of the whole communications jigsaw puzzle. A challenge for Web hosting solution companies is to realize their role is not just in infrastructure but also in providing the tools to maximize customers' total Internet communications.
Marsh: Three variables impact a customer's hosting experience: pricing, technology and service. There has been a lot of focus on pricing. Customers can now get shared hosting for free, dedicated servers for under $50, and more bandwidth for less. Amid price competition, we cannot lose sight of the importance of service. If the industry's average service standards deteriorate, customers will develop the perception their Web sites aren't appropriate for mission critical business functions.
