Another New Beginning for DellHost Customers

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Another New Beginning for DellHost Customers
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By Esther M. Bauer
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From Web Hosting Monthly, February 2004 edition
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February 27, 2004 — (WEB HOST INDUSTRY
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REVIEW) — The December sale of DellHost to VeriCenter marked the end
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of the DellHost brand and another new beginning for a customer base
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that has more than likely become accustomed to moving around.
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DellHost was created in February 2000 to
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help the world’s largest computer manufacturer make up for its falling
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hardware margins. Dell Computer Corporation’s existing customer base of
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small-to-medium size businesses provided the platform for entering Web
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hosting – then seen as a lucrative services market.
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Eighteen months later, Dell transferred
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DellHost customers to Sprint in a seven-year alliance to optimize the
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offerings of both organizations and generate between them hundreds of
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millions of dollars in sales of hardware and telecommunications
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services.
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Last June, Sprint (sprint.com)
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announced its Web hosting division unprofitable, and in a December 2003
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deal reportedly worth $12.5 million it exited the hosting market,
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selling approximately 400 managed hosting customers along with four
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supporting data centers to VeriCenter (vericenter.com), a Houston-based provider. DellHost customers were part of the sale, but the DellHost brand wasn’t.
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The sale allowed Sprint to move from a direct hosting sales model to an indirect model, says spokesman John M. Polivka.
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“Sprint is keeping hosting within its
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product portfolio while relying on third-party providers with whom we
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have referral agreements; they in turn will continue to use Sprint for
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transport services, as each data center sits astride Sprint’s Tier One
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Internet backbone,” Polivka says.
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Sprint’s exit from the industry, the
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transfer of DellHost customers, and VeriCenter’s growth through the
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acquisition inspires a multitude of meanings and interpretations
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between the parties involved, as well as among competitors and
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observers.
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The purchase gives a larger national
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footprint to VeriCenter, which boasts 14 consecutive quarters of
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revenue growth since its founding in 1999 and a customer base of
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businesses including the federal and local governments, energy,
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professional services and technology companies.
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The acquisition adds data centers in
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Atlanta, Boston, Dallas, and Denver to VeriCenter’s holdings, in
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addition to technical talent and many assets of DellHost and Sprint
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E-Solutions.
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“We grew immediately from a strong local
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player to a national player in the top tier of the managed hosting
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market. Our goal was to find a way to remain profitable while making a
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bold move of that nature, so we are naturally very pleased,” says
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Leslie Butterfield, Ph.D., vice president of marketing at VeriCenter.
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“Today, we are firmly established in the
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top tier of pure play managed hosting providers. Our goal is to
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continue to grow the business to the top of our industry becoming the
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preferred provider of managed hosting and utility computing to the
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small and medium sized business market as well as the enterprise
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business market.”
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According to Butterfield, VeriCenter
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stood out to Sprint because of its standing in a number of areas,
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including: a sharp focus on managed hosting; mature processes in the
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managed hosting space; the financial strength to manage the transition;
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and a company Sprint would want to partner with in a marketing
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agreement and as a provider of managed services to Sprint customers.
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Still, Sprint’s exit from the direct Web hosting model hasn’t been without controversy.
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Sprint’s exit “was a smart move, but it
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was a stupid move to enter the business in the first place,” says Ben
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R. Neumann, founder and chief executive officer of Globat LLC (globat.com), a Los Angeles based hosting company.
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“They were thinking ‘it’s an interesting
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little business, and we are going to make $250 million a year with it.’
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Then they noticed it’s just as expensive as maintaining your cell phone
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customer base or your phone long distance customer base. You have to
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maintain them and make sure they are happy, otherwise you lose a lot of
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them. Customer turnover in the Web hosting industry is substantial.
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“As we have seen over the last few years,
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there is heavy consolidation going on in the hosting industry, and it
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will continue to go on for quite some time until the companies that
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just want to make a quick buck are weeded out,” Neumann says.
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The transfer of DellHost customers to yet
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another provider also resulted in complaints from DellHost customers
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that emboldened Neumann to promise them better service for free: any
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DellHost customer who signs a one-year contract with Globat gets six
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months of free Web hosting service.
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“The response has been very good. Here
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you can get three times the features and the same customer service for
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$7.50 per month,” Neumann says.
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“It’s always bad if your host goes out of
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business, but when you also have been paying too much: $20, $30, $40,
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$50 per month, you get angry. Many former DellHost customers are
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actively referring other DellHost customers to sign up with us,” he
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says.
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Neumann, an industry veteran since
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founding a low-cost Web hosting service in 1995, says he will continue
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trying to win over former DellHost customers even though the transfer
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to VeriCenter is complete.
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“As I discovered with my previous
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company, which did 16 acquisitions in two years, they [VeriCenter] will
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discover acquisition is terrible. You have to be extremely well versed
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in how to do it or you lose the majority of your customers, because
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people like me are after you…We won’t be sleeping. We will keep our
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feelers out for disgruntled customers,” he says.
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Whether the VeriCenter management team is
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equipped to deal with the instant growth the acquisition brings is one
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of the key questions sparked by the deal, says analyst Andrew
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Schroepfer of Tier 1 Research (tier1research.com).
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“That kind of instant growth is both a
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positive and negative challenge. It is the kind of transaction where
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good leaders are created or destroyed,” Schroepfer says. “The company
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seems to be in the right frame of mind and ready for the opportunity.
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The contract renewal cycle will be the most significant challenge. The
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company needs to make itself known as a trusted partner, and if it can
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earn the respect of the customers quickly before the renewal cycle
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comes around the rest of the issues can be handled without a problem.”
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With the Sprint transaction now final,
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those customers have a new provider, “so the uncertainty card that a
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competitor could play is now gone,” says Schroepfer. The chief time for
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competitors to encourage the migration of DellHost customers is gone,
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he says, describing “a lost opportunity for low hanging fruit.”
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