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InformationWeek.com September 18, 2000
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Web Hosting Heats Up

The increasing demand for Web-site management services has vendors scrambling to keep up

By Bob Wallace

More on hosting centers:

  • Digital Island Buys Rival (7/24/00)

  • TechWeb: Exodus Aims For Promised Land Of Storage Service (8/28/00)

  • TechWeb: Intel Enters Managed Outsourced Hosting Realm (7/7/00)

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    B eing on the Web is critical. Hosting your own Web site is not. Those simple truths are fueling the market for companies that specialize in hosting and managing other companies' Web operations. In recent weeks, Britannica .com, Merrill Lynch Online, streaming-media firm Liberty Livewire, discount shoe chain Marty's Shoes, and CBS MarketWatch have all signed up for Web-hosting services.

    The surge in demand has vendors scrambling to keep up. "Our Newark, N.J., site sold out two weeks before we opened it" in July, says Lew Wilks, president of Internet and multimedia markets at telecom service provider Qwest Communications International Inc. "It's a question of how fast we can build the centers."

    Web hosting is soaring as companies turn to service providers to cut time to market, avoid infrastructure costs, and deal with staffing shortages. "I don't know where we'd be without hosting services," says Tom Herrick, a system architect for MuseumCo.com, a 6-month-old rare-gifts company in Charlottesville, Va., that uses basic hosting services from Sprint. "We can get secure server space, power, broadband network access, and temperature controls very cheaply--things we couldn't afford to build or buy."

    Basic hosting services have been available for years. But the market didn't take off until growing numbers of companies moved online to sell products and provide information to customers. Now, technology vendors of all stripes are spending billions of dollars to build hosting centers and sign big-ticket deals to acquire hosting space.

    IBM is making a grab for its share of the hosting market. This week, it will disclose a deal to lease space from Equinix Inc., a data-center owner, to offer Web services. IBM is also spending $450 million to lease space in AT&T data centers for the same purpose, and it's building hosting centers for Qwest in return for 25% of the space in each facility.

    Qwest last week opened 50,000-square-foot hosting centers in Ohio and Florida, also to great demand; it plans to have 14 centers online this year and 24 by the end of next year. AT&T intends to have 44 centers with more than 3 million square feet open worldwide by the end of 2002. Intel created a separate hosting subsidiary and will spend as much as $2 billion during the next four years to build hosting centers around the world.

    Meanwhile, WorldCom is spending $6 billion for Intermedia Communications to gain control of high-end hosting company Digex Inc. (see story, p. 125). Japanese telco NTT Communications recently got U.S. government clearance to buy hosting company Verio Inc. for $5.1 billion. And Internet service provider Savvis Communications Corp. last week cut a deal with Level 3 Communications Inc. to lease data-center space so it can offer hosting services.

    Business demand is fueling the growth. A recent Gartner Group/Dataquest survey of 254 companies indicates that 46% use or plan to use one or more Web-hosting services in the next 12 months. Forrester Research predicts hosting revenue will soar from $1.4 billion last year to $19.8 billion in 2004.

    The growing menu of services is one reason more customers are signing on. Forrester divides the market into four basic categories:

  • Shared hosting, in which multiple companies share a single server provided by the vendor. Forrester says the market will increase from $440 million this year to $890 million in 2004.

  • Co-location, where businesses lease space in a hosting facility and provide all their own hardware and software. This sector will grow from $470 million to $1.03 billion in 2004.

  • Managed hosting services, which means the centers provide dedicated servers, systems management and monitoring, problem notification, and flexible bandwidth based on traffic needs. This segment will jump from $980 million this year to $10.97 billion in 2004, Forrester says.

  • Custom hosting, which includes a full range of services such as consulting, systems integration, and the monitoring of applications and operating systems. It will leap from $580 million to $6.68 billion in 2004.

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