Is Offshoring Hurting Web Hosting?

By Jay Lyman

From Web Hosting Monthly, February 2004 edition

March 5, 2004 -- (WEB HOST INDUSTRY

REVIEW) -- The pain of job loss and presidential politics have put

offshore outsourcing front and center among IT industry issues. There

may be debate over whether US companies have to hire globally to

compete globally or whether they should be rewarded for keeping jobs at

home and punished for shipping them away, but there is little

disagreement that the hiring abroad shows no signs of slowing.

A recent IDC (idc.com)

survey of IT services providers indicated that the offshore component

in delivery of US IT services may rise nearly 25 percent by 2007, up

dramatically from just five percent in 2003. And industry observers and

outsourcing firms see the titles headed outside of North America

broadening beyond low-level programming and call center jobs.

Most industry analysts agree that the

application development and technical programming parts of hosting -

perhaps among the first already affected by offshoring - will be most

impacted. As for colocation, shared, dedicated and application hosting,

those jobs are less likely to be lost overseas as the cost savings are

minimal and latency is maxed.

"I don't think Web hosting's going to be

impacted for awhile," IDC senior analyst David Tapper says. "It's going

to be a few years before any of that takes any kind of a hit."

Where hosting will be impacted by

offshore hiring most, says Tapper, is application hosting, where

companies will ship an application to a foreign nation.

"You don't see any impacts right now," Tapper says. "Most companies aren't going to move their applications offshore."

John Challenger, president of outplacement firm Challenger, Gray & Christmas (challengergray.com), sees it differently and paints a more troubling picture for those in the industry.

"Companies are looking for ways to cut

costs and finding people around the globe," Challenger says. "(Web

hosting) is the kind of job that's easily outsourced because the user

doesn't know where the site is hosted."

Challenger agrees that Web site design,

development, programming and graphics jobs will be most impacted by the

growing trend of hiring not only in places such as India and China, but

also in Argentina and elsewhere across the world.

"Because the Web has become such a

universal language, the skill to build a Web site, it's almost like

learning how to type," Challenger says. "Where I think it's going to

change is as Web hosting and Web programming and development becomes

something that many, many people will know how to do. It's moving from

something that's very specialized know-how to something everyone in the

world knows how to do. It's a borderless world."

Still, Challenger said the

commoditization of some Web development and programming skills for Web

hosting will actually bring companies back home to hire.

"Companies will come back here for that,"

he says. "It becomes more of a skills base or task list that companies

will assign like other tasks. More and more companies will just do it

on-site. They will have a computer for that and people who manage it."

Yankee Group (yankeegroup.com)

program manager Andy Efstathiou says that although offshoring's impact

on Web hosting jobs is currently limited, hosting jobs are to be among

the more prominent positions being lost in the future.

"It's not taking a lot of jobs," he says.

"Over time, though, there will be a very large transfer overseas in

terms of Web hosting."

Efstathiou said application development

in support of Web hosting will increasingly go offshore as will

Web-enabled call center solutions, which he said will increase

dramatically.

The data center end of things, Efstathiou said, is less likely to feel

the pressures of low-priced labor abroad.

"The hosting of sites in offshore

locations is pretty limited and I don't expect that to rise that much,"

he says. "They probably always will be (hosted locally) because there

are some important costs associated with location in latency rates, the

lag time to respond - that's more important than location cost."

While Efstathiou said development and

programming positions are most likely in danger of offshore

competition, marketing, creative "touch and feel" and other positions

will stay safer.

"As the trend plays out, it's unlikely to

support more programming jobs in North America, but as more and more

businesses get on the Web, the need for unique marketing and the need

to create touch and feel - that demand is increasing," Efstathiou says.

Efstathiou adds that even if there was

enough demand for programming jobs in North America, the IT industry

would support fewer jobs because things have become more automated. But

he also expects increasing demand for local talent for both North

American and foreign markets in terms of digital media marketing.

"I would anticipate increased demand for jobs primarily in North

America for North American audiences," he says. "To the extent India

gets online and uses the Web for e-commerce, then they would have to

have marketing skill sets that would appeal to their locale."

For now, though, many of the jobs going

to India and elsewhere are being lost on the basis of labor that is 20

to 30 percent cheaper than paying North American employees, analysts

estimate.

Lawmakers have seized on the emotional

issue with proposals for incentives to keep jobs in the US,

restrictions on government IT service contracts and requirements of

disclosure when call centers are located overseas.

In response to proposed legislation, a

group of top tech executives from Dell, HP, IBM, Intel, Unisys,

Motorola and others - known as the Computer Systems Policy Project -

argued the focus should be on educating and training a superior

workforce at home. The group also warned that restrictions on global

hiring could backfire or even spark a trade war.

IDC's Tapper says although large

outsourcing firms may pave new offshoring inroads when they prove they

can host a site offshore with the same reliability, availability and

scalability of a nearby data center, the market will likely keep

hosting at home for now. Tapper also said that restrictions on where

and how data can be hosted and stored may also prevent Web hosting jobs

from traveling.

Efstathiou says while a call center

disclosure rule is a good idea for a nation concerned about the loss of

US jobs, it would probably have little effect.

"I don't think customers statistically

are likely to demand that (service be local)," he says. "I don't think

they're going to change their buying behavior based on that."

Challenger says while regulatory measures might limit offshore outsourcing, it will be hard to stop it no matter what.

"I do worry," he says. "It's a tide and

it'll just keep slipping through. The world is moving into an era of

globalization in the workplace and technology's going to lead the way."

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