Dan McLean: At The Edge

Intel Corp. recently folded its Web hosting division. That comes as news of little consequence but for the fact that, in the Web hosting business, perception often gets misconstrued with reality and the perception here may be that Web hosting just isn’t catching on. Each time a Web hosting company with significant brand falls, questions surface regarding the general viability of the Web hosting market, regardless of whether the failed venture was one which was successful, significant or even well conceived.

Intel was pretty much a Web hosting provider in name only and had a negligible market share. Certainly in Canada Intel was invisible as a Web hosting provider. Reports say Intel’s decision is a result of an effort to refocus on its struggling core microprocessor business. Web hosting was little more than a dalliance, a superfluous business and probably a distraction for Intel in these difficult times.

But decisions made by Web hosting companies to so quickly and suddenly exit the business are having far-reaching effects.

In the grand scheme of Web hosting, Intel’s demise amounts to little more than “so what?” It’s not as though many folks knew Intel had a service and the company itself has, according to some reports, never revealed its Web hosting revenues. It’s probably reasonable to assume there wasn’t much to report. Last year the company reduced its headcount within that business unit, but never revealed by how many. Again, probably because there weren’t many people working in the division, so why go into any detail?

Intel’s demise fuels a sense of volatility in the Web hosting market and uncertainty seems to have a great deal to do with limited success currently seen. IDC Canada has pegged the overall Web hosting market here at slightly less than $250 million, but growing at a healthy 21 per cent over a five-year forecast period. Web hosting is a somewhat modest-sized market and when IDC Canada introduced this forecast last year, many in the industry suggested the figures were much too low. Others had forecast a Canadian market at well beyond $1 billion.

This year, however, some are suggesting the IDC Canada forecast may, in fact, be slightly optimistic. Last year’s research showed customers here had a great deal to learn about the notion of hosting and the value it provided. As a result, Canadians generally weren’t buying. The education continues and more recent research suggests many businesses are only now beginning to embrace the concept.

Among the greatest Web hosting market inhibitors is uncertainty. Too many service providers have failed, largely due to their perception that the market opportunity held limitless promise and was easy to capture. The early hype portrayed Web hosting as something akin to a get-rich-quick scheme, where service providers believed everybody wanted it and needed it, and Web hosting companies didn’t need to do much to sell their services.

This set expectations skyrocketing and Web hosting companies began spending venture capital like drunken sailors, investing in multimillion-dollar data centres, which were impossible to fill. Maintaining these facilities eventually bled Web hosting companies dry. By the time it was recognized that gradual growth and sustainable investment was key and that it’s necessary for hosting companies to remain diversified businesses so as not to hedge all bets on immediate success, it was too late for many. Consider the demise of Exodus Communications as the best example yet of Web hosting euphoria run amok.

Arguably among the greatest customer deterrent with regard to Web hosting is lack of long-term commitment and overall direction on the part of many of those who serve the market. Some still scratch their heads wondering where are all the customers and why aren’t they knocking down those data centre doors. Web hosting was largely judged by its early success in the U.S. prior to the dot-com collapse of 2000.

But dot coms were very much an American phenomenon, which didn’t exist in most other parts of the world. So while it all seemed pretty easy business in the early days of Web hosting, there remains plenty of customer value articulation and overall education to be done. The dot com experience gave the impression that Web hosting simply sold itself, so it seemed to some that it was simply a matter of building a data centre and waiting for a world of customers to come calling.

The disconcerting aspect of Intel’s exit from Web hosting is not that a prominent player hasn’t succeeded, but rather the appearance that a high-profile company wasn’t really in it for the long term. There’s nothing more frustrating for a customer than having your service provider go out of business, since you’ve probably selected a company like Intel based on the expectation that they’d be around for awhile. There’s little comfort in a provider offering to transition a customer to another provider, likely one that may have been rejected in the first place.

The demise of Intel in the Web hosting space, from the perspective of market loss, isn’t significant. But the disappearance of another well-known name from the Web hosting market plants seeds of doubt in the minds of many customers. They want to deal with Web hosting providers that are focused, committed and in it for the long haul. Such companies are getting harder to find.

McLean is director of outsourcing and IT utility research for IDC Canada LTD. in Toronto. He can be reached atdmclean@idccanada.com