Analysts warn of looming Web hosting battles

Canadian Web hosting services are on the verge of something big according to the IDC Canada survey, Canadian Hosting Services: Your Place or Mine. Released last fall, the survey found that the hosting market is about to become a battlefield.

“As companies are putting more of their business online, they are coming to the conclusion that they can’t do it alone,” said Jason Bremner, the senior analyst of outsourcing and IT utility services research at IDC who conducted the survey. “They have to go to an external provider. That is the essence of Web hosting.”

Approximately 285 small, medium and large businesses over eight verticals participated in the survey.

“One of the key drivers in the U.S. marketplace was the explosion of dot-com,” Bremner said. “Canada didn’t experience that, even in relative terms. We didn’t experience the boom, but we did experience the bust, which is affecting some of the providers.”

According to the study, another difference between the United States and Canada is how much budget businesses are dedicating to hosting. About 80 per cent of businesses surveyed have a budget of less than $100,000 annually to maintain Web sites, a statistic that Bremner found surprising. However, that budget is likely to increase 18 per cent in 2002.

“The survey results told us that the top three considerations were service quality, price competitive and technical expertise,” Bremner continued. “How are companies doing today in terms of meeting those needs? When we looked at how likely people were to change their providers, most respondents said they were very unlikely to change in the next three months. That is an indication of customer satisfaction.”

The study also shows that hosting demands increase as the complexity of Web sites increases and that Web hosting is the most commonly outsourced service. However, it also found that only 28 per cent of those using hosting services have customer service features like online ordering and payment, leaving room for this market to grow.

“Not a lot of Web sites are very complex, which means it is just the start of the market,” IDC research analyst Dan McLean said.

“The marketplace is going to be a battlefield until the market consolidates and reaches stability,” McLean said, explaining that the battle would be fought by the more than 30 hosting service providers and 700 Internet service providers in Canada.

“From a user perspective, they will be very closely examining their provider so they can choose a provider that will still be around for the execution.”