European Web hosting markets experience exponential growth March 13, 2001 — The Web hosting industry is not only making gains in North America. According to a recent IDC (www.idc.com) report, the Web hosting market in Western Europe is estimated to grow from $907 million in 2000 to over $5 billion in 2004.
The report stated that U.S. providers, who have the financial backing and hosting expertise to do high-end data center rollouts, will have the advantage over traditional Europeans companies, who are still mainly Internet service providers and public telephony operators.
Indeed, over last year, it has become the fastest-growing segment of many operators’ businesses. Against this backdrop, the research firm says that Europe is beginning to see network-focused companies place more emphasis on Web-level and application-level services.
James Eibisch, research manager of IDC’s European IP Services program, said that U.S. providers, focused purely on hosting, with the funding and expertise required to make major rollouts are now entering the European market and challenging existing providers with a vengeance. “Network operators and carriers are increasingly turning to hosting as a way of increasing margins, improving their position in the IP services value chain, thereby attracting investors and strengthening their financial position,” he said.
Indeed, late last summer, IBM (www.ibm.com) had announced that it intended to spend $1.9 billion to build and operate a group of Internet hosting sites in Europe. With the assistance of the Dutch telecommunications giant KPN/Qwest (www.kpnqwest.com), Big Blue intends to build and operate 18 so-called “CyberCenters,” and generate $4 billion in revenues to be split evenly. The data centers would offer electronic commerce services like Web hosting and the maintenance of platforms for software application services. Under the joint arrangement, IBM will lease 25 per cent of the available space in the centers to its own customers.
Not surprisingly, the U.S.-based Internet infrastructure provider Conxion Corporation (www.conxion.net) and European telecommunications provider Versatel Telecom International N.V (www.versatel.com) also duplicated this type of joint arrangement approach.
Last summer, Conxion acquired from the Dutch broadband provider its Internet subsidiary SpeedPort (www.speedport.net) and agreed to purchase European network services from Versatel. In return, Versatel argeed to obtain global Internet transit services from Conxion. This long-term partnership between Versatel and Conxion will result in revenue commitments from Conxion to Versatel for the provisioning of infrastructure services and revenue commitments from Versatel to Conxion for services for the next three years. The relationship with Versatel marks the first phase of Conxion’s expansion into international markets to offer managed hosting, connectivity and technical services to global companies. Conxion will quickly integrate the five-country European SpeedPort network and data centers with its own nationwide U.S. backbone in order to create a fault-tolerant, transatlantic wide area network (WAN). With SpeedPort’s assets, Conxion will add data center capacity for 10,000 servers in Europe by the end of the year. Conxion expects to have 100,000-server capacity by Q4 2001.
“This acquisition is a key element of our plan to be one of the four or five players with a global Internet backbone who can offer world-class hosting and network services,” said Antonio Salerno, chairman and CEO of Conxion. “Versatel is an important fiber provider in Europe and savvy business ally, and we will become key customers for each other’s services. This agreement provides us an integrated pan-European network along with SpeedPort’s data centers and talented staff and management who really know the terrain for European hosting. We will accelerate the European market’s move away from collocation services by quickly launching Conxion branded managed hosting services.”
In the agreement, Versatel will provide Conxion with the ability to light fiber on demand across the Atlantic and within Europe at up to STM 16 (7.4 Gbps, bi-directional) fiber backbone capacity during the first year, with higher capacity available within the year thereafter. The fiber route and bandwidth build-out will provide SONET-protect, dual redundant connectivity between at least five European cities and the US by the end of 2000, which will bring the network up to Conxion’s reliability standards.
Founded in 1998 with headquarters in Amsterdam, SpeedPort was acquired by Versatel in May 1999. SpeedPort provides IP connectivity, hosting and facilities management for customers including Internet service providers, new media enterprises and global corporations. It has leveraged Versatel’s fiber to build-out a high-capacity IP backbone network, and currently operates data centers in Belgium, France, Germany, The Netherlands, and the UK.
“Our agreement with Conxion gives Versatel a strategic partnership with a Tier 1 U.S. IP network and provides us with a major new fiber customer for our international network,” said Raj Raithatha, chief financial officer of Versatel. “We look forward to a long-term partnership with Conxion that will continue to grow as both companies expand internationally.”
“This agreement will allow us to host downloads for our global Internet service vendors customers, like Microsoft, Symantec and Oracle, who’ve got to get their software into European hands,” said Mr. Salerno. “Now we will be able to host applications with a low-latency response for our application service provider (ASP) customers, who want to deliver services over the Internet to European companies. Having a European presence also will open doors to European customers who need access to a global network for connectivity and sophisticated managed web hosting services as a step up from standard collocation services.”
The agreement with Versatel gives Conxion rights to the equivalent of up to OC-48/STM-16 capacity in Europe, with available capacity increasing after the first year. More recently, the company also opted to expand its European presence by introducing managed services. Operating from data centers in London, Amsterdam and Brussels, Conxion will provide the same fully managed hosting services that it currently provides U.S. customers such as Microsoft (www.microsoft.com), Oracle (www.oracle.com), Symantec (www.symantec.com), Seagate (www.seagate.com) and Visa (www.visa.com).
In conjunction with the European roll-out of its services, Conxion also announced that it is teaming up with a major European communications company to deliver managed hosting services under a three-year agreement for their multinational corporate customers. This agreement is part of Conxion’s OEM private label strategy to provide managed hosting services on behalf of companies serving the information technology sector. Conxion’s OEM hosting strategy was launched late last year with a multi-year agreement with a US-based Global IT services company.
The European company’s worldwide sales force will offer managed hosting by Conxion as part of its portfolio of hosting services. These services range from simple one-server deployments up to complex configurations of high availability clustered servers, and include the option for Conxion’s FailSafe 99.999% uptime guarantee. The FailSafe service level agreement specifies that if a customer is down for 30 seconds the customer will receive a free month of hosting.
“We believe it’s important to launch our managed hosting services in Europe with a respected partner that has an established customer base of multinational corporations,” said Antonio Salerno, Conxion’s founder and chief executive officer. “This agreement allows our partner to expand their portfolio of services with our high-quality, high-reliability managed hosting services. We offer economies of scale and a proven track record with some of the largest high-tech customers in the world.”
Among Conxion’s first European customers is StudioEU (www.studionl.nl), which is hosted from the Amsterdam facility. StudioEU provides digital photographs and other images to graphic arts professionals around the world. As a result, the company requires the high-bandwidth, ultra-reliable services for which Conxion is known.
Conxion’s managed hosting services in Europe will leverage the network and data center infrastructure purchased from Versatel Telecom International in August 2000. Conxion has spent the last six months upgrading the infrastructure and bringing in data center staff to deliver managed hosting services. Conxion’s European network today features dual redundant connectivity between both London and Amsterdam to Conxion’s Tier-1 network in the United States. It will add dual redundant connectivity between its data centers in the cities of Amsterdam, Brussels and London over the next year. Conxion’s current European hosting facilities can accommodate tens of thousands of servers.
Leading European companies are beginning to recognize the large advantage of dedicated managed hosting over other hosting models such as co-location. Unlike co-location, which only provides data center space and Internet connectivity, managed hosting services take responsibility for providing the servers and managing them on behalf of customers. Compared to co-location, the managed hosting model minimizes upfront capital costs, lowers operating expenses, and reduces staffing requirements. It also allows companies to focus on their core businesses and instantly scale their hosting services to meet demands.
These move into the market by American players is being driven by the fact that the majority of European companies without Web sites want to simply establish a presence.
Further, companies that already have Web sites are increasing the size and complexity of their sites and wish to branch into e-commerce capabilities. A new report scheduled for release shortly by market research firm Ovum, entitled “Web Hosting, Usage and Markets,” predicts significant growth in European hosting. “Companies like Conxion are wise to try to grab market share in this potentially lucrative growth market,” said Christina Kasica, senior consultant at Ovum and lead author of the report.
European demand for managed dedicated hosting is experiencing strong growth. According to a recent study by IDC that maps the potential of European Web hosting services, “Top-level European spending on total hosting for 1999 is $532 million; for 2004, $5,126 million 2004 spending on managed hosting would be $2,801 million.”
“The growing base of European specialist hosters and U.S.-based entrants into Europe will exert competitive pressure, driving service innovation, which will, in turn, encourage market adoption,” said James Eibisch, IDC analyst and author of the 2000 Report on European Web Hosting Services, 1999-2004.
Another reason that companies native to the European market are planning to upgrade their hosting services is because they are intent to utilize the potentials of faster bandwidth access. As major media group begin moving their delivery channels online for high-volume content, such hosting facilities become pivotal to ensure proper delivery. The market will also be driven by the relatively cheap broadband access for the end user, putting pressure on Web sites to improve their connectivity.
The establishment of new data centers throughout Europe facilitates these goals. Also the move into the Western European market is also facilitated by U.S. market desire to improve content delivery to that region of the world. Bandwidth might conduct Internet traffic at extremely fast speeds within the network loops local to the continental United States, but the speed of such traffic degrades once it reaches Europe and the United Kingdom. The establishment of data centers in Old World however will ensure that the New Economy will not be impeded by distance or speed degradation.
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