European Hosting Giants Appear Headed in Different Directions
By Adam Eisner, theWHIR.com
November 1, 2002 — (WEB HOST INDUSTRY REVIEW) – There could be large changes in store for Europe’s Web hosting market after a former hosting giant announced its return – only days after another powerhouse appeared ready to exit the industry.PSINet Europe threw its hat back in to the ring Thursday when it said it was ready to claim the position of “the dominant independent player” in infrastructure outsourcing. The announcement came about six months after the company was purchased by a group led by Israel Corporation, a publicly held company, and ClearBlue Technologies Holdings for approximately $9.5 million.Prior to the purchase, PSINet Europe had been the European arm of global ISP and outsourcing firm PSINet, which went bankrupt in spectacular fashion last June. Following PSINet’s bankruptcy filing, which did not directly affect PSINet Europe, the company’s European division was put up for sale.The announcement was made via a brief release that was short on details but full of promises. “The exponential growth of companies in the network and hosting sector has led to some unkept promises, but PSINet Europe has reaffirmed its commitment to a program of continuous improvement,” the release said. “PSINet Europe recognizes that a key driver for its outsourcing customers is their financial stability. As one of the first companies that has been able to shake off its debt, it is confident about its ability to live up to its service level and operational excellence.”The company also said it would take advantage of the sagging telecom and Web hosting sectors to get ahead. “The recent stall of the communications sector does not mean that demand for the Internet and e-commerce has stopped growing,” said PSINet CEO Richard Williams in the release. “It does, however, mean that PSINet Europe can buy communications and hosting spacefor a fraction of the prices that existed in the 1990s, enabling us to offer very competitive solutions from a solid base.”The announcement was made a little over a week after it became apparent that Cable & Wireless, another hosting giant, would face a showdown over the future of its management and strategy.There has been much speculation over the future direction of the firm ahead of an internal meeting this week that supposedly is to determine the company’s strategy for the upcoming year. The results of this meeting are not expected to be revealed until next month, when the company announces its first half figures.Several news outlets have reported that the company will pull out of the U.S. Web hosting market at the time of the announcement. Should C&W follow through, it would mark a quick, significant about-face in the company’s strategy and vision. It was less than a year ago that the company completed its acquisition of bankrupt Web hosting firm Exodus Communications, which it purchased for $850 million. Cable & Wireless also acquired U.S.-based Web hosting and content delivery firm Digital Island for $340 million a year earlier, putting the company “in a position of being able to offer pretty much everything that an enterprise needs to outsource their IT,” said Dave Asprey, Exodus’ Director of Strategic Planning, in May – about the same time that Cable & Wireless announced Exodus had been performing better than expected.Should Cable & Wireless decide to exit the U.S. Web hosting market, where it is estimated the company is currently losing £300 million a year, it would likely intensify the pressure on CEO Graham Wallace to resign. The company’s push in to the U.S. Web hosting business was largely his initiative – therefore, should the company announce its intention to leave the U.S. Web hosting business (which represents a significant part of the company’s hosting operations), Wallace’s legacy will likely be considered a failure.Shares in Cable & Wireless have been floundering the past year, indicating investors have little confidence in the company’ strategy as well. The company has issued three profit warnings over the past year and a half, has seen its stock lose more than half its value over the past year, and has experienced significant pressure since Verizon CEO Ivan Seidenberg questioned the value of holding shares in the company last week. “As a financial investor, it’s not as strategic as we thought it once might be, so I think we’ll just keep an eye on what we might do with it but recognizing it’s not a strategic necessity at this point,” he told reporters last week at a conference. “We’re going to watch it.” Verizon owns a little over five per cent of the company.If Cable & Wireless pulls out of the U.S. Web hosting market (and, in effect, Web hosting almost entirely), it will leave an interesting hole to fill in the high-end hosting market. Since the dot-com crash that ultimately led to the demise of the original Exodus Communications, Cable & Wireless has been focusing on clients that could make use of its “trinity” of service offerings – network capacity, content delivery and hosting services. Could this be a space for PSINet Europe to try its luck in? While Cable & Wireless leaving the U.S. market is likely good news for Europe’s as well, crossing the Atlantic is not likely one of Richard Williams’ burning priorities, given its previous experiences there.
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