German Web Hosting Provider Plans Significant U.S. Expansion

By Jim Louderback  |  Posted 2005-10-27

German Web Hosting Provider Plans Significant U.S. Expansion

KARLSRUHE, Germany—International Web hosting provider 1&1, based here, plans significant expansion over the next 18 months in both the United States and around the world.

In less than two years, 1&1 has vaulted into the top 10 of Web hosting and domain registrars in the United States. But according to CEO Andreas Gauger, in a series of wide-ranging discussions held here, he wants more. Much more.

"In the UK were No. 2, and soon well be No. 1. We wont get to No. 1 in the U.S. soon, but I want to be in the top five in two years," Gauger said. His two-year goal would require doubling 1&1s current customer base of around 250,000 to a half-million.

1&1 has built its success on three key pillars: network and customer-service automation, offering free home-grown Web development and software tools, and its own customized Linux distro that allows the company to pack upward of 25,000 customers on a single machine—compared with an industry standard of around 5,000. This translates into an ability to offer extremely low prices and an abundance of features and still make money.

1&1 offers a lot more than basic domain registration packages. Click here to read PC Magazines review of 1&1s Professional eShop.

The Linux distro has evolved over 10 years, combining some from Red Hat, some from Debian and a little bit from SuSE too. "Microsoft .Net never worked," Gauger explains, although new versions are closer to Apaches carrying capacity. The company employs a small army of Linux developers in its Karlsruhe headquarters, many drawn from the Technology University across town.

To keep pushing the market, Gauger plans on adding even more features to 1&1s basic hosting package. The company has just finished a three-year in-house development project that delivered a CSS-based framework that makes it easy to deploy new capabilities for its small and midsized customers. "To keep market leadership we will invest in features that only someone with a big company can afford."

Those features include traffic reporting tools, spam filtering and virus protection, a PDF-to-Web converter, and more. The site development engine features Web templates from top designers in Europe, and a new e-commerce capability that lets premium customers quickly set up shop on the Web. An expanded Web shop will be out later this year, integrated into the rest of the software.

1&1 is embracing software as a service as well. The company plans on offering everything a small business needs to operate on the Web, including accounting, HR and other back-office functions. "Some stuff we will do on our own," Gauger explains, and others will come from partnerships.

The company does not yet offer blogging tools, although those are due in the first quarter of 2006. The company explored buying popular blog company Six Apart, but in the end decided to build the capabilities in-house. "We wanted integration into the rest of the systems," explains Gauger, as the reason why he backed away from the deal.

Acquisitions arent out of the question, though, when it comes to gaining market share in the United States. The company was rebuffed, however, by one of its biggest competitors in the United States: "Go Daddy wouldnt sell to us," Gauger laments, "and now hes trying to buy us."

Next Page: 1&1 is not for sale.

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But 1&1 is not for sale. Business is too good. "I make high profits, and I cant spend it all," gloats Gauger. Whats he going to do with all that money? "Next year I will have more time for hosting world domination," he jokes. 1&1 plans on looking carefully at Eastern Europe and Russia, and perhaps even Asia. "Asia is difficult," Gauger says, pointing to cultural and political issues that may keep him from investing in that region.

In Germany, 1&1 is the second biggest DSL provider and the biggest registrar. Nearly half of German households will have DSL in a few years, and the company already has nearly 500,000 users of its VOIP-based telephony service. However, the company will probably not offer high-speed IP access in other countries because the company doesnt have a strong enough brand internationally to overcome a lack of a physical networking plant.

Gauger leaves the door open, though, for a possible MVNO play in Germany and elsewhere. "Maybe well do something in the mobile space," he muses. But WiMax isnt on the radar, again because 1&1 would "still need an infrastructure to put up the senders and receivers."

In the Web hosting business, the top five players in Germany have nearly a 60 percent share. The United States is still wide open, but Gauger sees that changing fast. "Microsoft and Google will enter the market," Gauger predicts. "The domain registration market has been waiting on Google for a year."

When these two giants come in, they will probably "offer some kind of free hosting, with advertising, and will sell domains for free." He also sees them attacking eBay and Amazon as well.

But Gaugers not worried about large companies competing with him. "All the competitors are not bigger than I am," he insists. "I have more customers than they do."

Gauger also thinks that the domain registration and Web hosting market is just too small to become a strategic business for large companies. Its a $500 million business, he says, "and thats not a big deal for Microsoft."

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