Telcos Rescue Hosting Biz

Acquisitions pay dividends for some providers.

A year after a consolidation shake-up rocked the Web hosting business, users of the more active providers services are reporting slow but mostly positive change while subscribers of stagnant companies are being forced to prepare contingency plans.

Taking a cue from their own end users—who often chose to outsource Web infrastructure so they could concentrate on core skills—successful providers found the route into the enhanced services of site co-location and managed hosting to be best addressed through acquisitions, not in-house building. The most active of the lot, mainly international telecommunications companies such as WorldCom Inc., in Clinton, Miss., and NTT Communications Corp., charged into the business by acquiring companies such as Digex Inc. and Verio Inc., respectively.

Today, WorldCom and NTT, in Tokyo, along with other heavyweights such as Electronic Data Systems Corp. and IBM, are the ones boasting long-established enterprise customer relationships, deep sales channels and experience in customer service. Now they are also the ones mounting aggressive campaigns to get competitors users to switch teams.

Its a far cry from the Web hosting worlds first wave of leaders, companies such as Intira Corp. and Exodus Communications Inc., which banked heavily on dot-com users and data center build-out and attempted too late to enter the higher-end infrastructure management arena, experts say.

Intira recently filed for bankruptcy, and Exodus, once the darling of the industry, is now on the ropes financially. Even specialty hosting companies such as Data Return Corp., despite having impressive recent customer wins such as Microsoft Corp.s Visual Studio .Net service and the online short-film site of BMW of North America LLC, is rumored to be for sale, with another established hardware maker, Compaq Computer Corp., as the rumored buyer.

Firm in their belief that partnering trumps doing complex things in-house, WorldCom and Verio executives say more change is under way, especially on the customer service front, with new initiatives such as one-stop data shopping, more efficient billing and support services, and increases in uptime and reliability. They plan to accomplish this by injecting their new data pipes with the more reliable telecommunications infrastructure.

Changes are happening already, such as two new services from Digex, of Laurel, Md., that are currently in the pilot stage. The first is a platform that will automatically check for application errors; the other is a service that will let applications run across multiple data centers. Both may be available by later this year, CEO Mark Shull said.

Meanwhile, Verio, in Englewood, Colo., is using its new parents dollars to expand into more data centers, to expand into Europe and to explore partnerships with MSPs (management service providers), according to Doug Schneider, president of Web services.

But given the current IT downturn, customers of WorldCom and Verio say changes cannot come fast enough. They also say that, like most mergers of companies with different backgrounds and cultures, some of the sales and support processes have been bumpy since last summers activity. Its a cost theyre willing to pay for stability of their Internet environments.

"They have more financial resources, so theyre less likely to go out of business. Thats going to be a question thats on my mind" when a contract expires, said Digex user Randy Hompesch, co-founder and chief technology officer of XS Inc., an online agriculture supply company in Raleigh, N.C.

"I was there when [WorldCom] bought UUNet and it was a great company, and now its not. I was quite concerned by all of that," said Jon Zerden, director of Internet technologies at Publishers Clearing House, the Port Washington, N.Y., sweepstakes company, which runs its servers, 35 in total, in Digex facilities. The good news, Zerden said, is that the technology team supporting the companys site hasnt changed, more data center locations are available, and Digex has been honest about what technologies it can and cant support. But, he added, the sales process has gotten "more burdensome."

At Verio, other changes under NTTs influence are better fire suppression and security technologies in the data centers, said a customer who requested anonymity. Having a third-party network security partner such as Riptech Inc. has also been a benefit, but Verios pricing is an ongoing concern, the user said.

The future will likely hold more competition in the hosting space from next-generation telcos emphasizing enhanced services, experts say. Last week, Qwest Communications International Inc., which specializes in fiber-optic connectivity and IP services, signed a preferred partnership agreement with Loudcloud Inc., the Sunnyvale, Calif., MSP run by Netscape Communications Corp. co-founder Marc Andreessen.

In that deal, Qwest becomes Loudclouds primary hosting partner for new accounts, and Loudcloud becomes Qwests primary MSP service.

"Everybody talks about up the stack, up the stack, higher-level managed services. We agree with that, [but] its fairly challenging to do well," said Chris Ancell, vice president of Web hosting services for Qwest, in Denver.

Qwests position is to partner, not build, and so Qwest will also look for managed services partners in areas such as streaming media and voice-over-IP technologies, Ancell said.