IBM leads hosting market

IBM Global Services’ Web hosting business expanded sharply in 2001 despite the tough economy, giving Big Blue a large lead in the Web hosting market, according to a new report from market research firm IDC.

According to the report, titled U.S. Web Hosting Services: Market Forecast and Analysis, 2001-2006, IBM Corp.’s hosting revenues grew nearly 45 per cent, from US$696 million in 2000 to more than US$1 billion in 2001. IBM says overall customer contracts for Web hosting reached a record $2.4 billion last year.

Those results push IBM far in front of former high-flyer Exodus Communications Inc., which had similar revenues to IBM in 2000 with $695.7 million. IBM, however, pulled further ahead last year as Exodus struggled under its heavy debt load, a string of executive changes and an eventual Chapter 11 bankruptcy filing. Exodus had hosting revenues of just under $900 million last year, according to IDC.

“IBM [Global Services] maintained its leadership position in the Web hosting market in 2001,” IDC analysts Melanie Posey and Meena Almaula write in the report. “The fact that Web hosting is not the company’s only line of business and its limited exposure to the collocation market have somewhat insulated it from the downturn in the economy.”

As for Exodus, the report’s authors say it became “the falling star of the Web hosting market” and that its bankruptcy “calls into question the underlying business model of pure-play [hosting service providers].”

Indeed, British telecommunications company Cable and Wireless PLC acquired Exodus earlier this year. C&W ranked 16th in the IDC study, but analysts have said its acquisition of a majority of Exodus’ assets stand to push it into the forefront of the hosting industry.

“For next year, what the market share picture looks like is going to depend on how successfully Cable & Wireless can integrate Exodus into the existing hosting operations it has with Digital Island. It will also depend on the extent to which Exodus customers stay with C&W or take the whole transition as an opportunity to move somewhere else,” Posey says. “That’s the wild card in this whole thing.”

Two other telecommunications companies, WorldCom Inc. and Qwest Communications International Inc., were third and fourth in hosting market share in 2001, according to the IDC report, with $317 million and $230 million in revenues, respectively.

Overall, IDC expects the Web hosting market to grow from $4.8 billion at the end of last year to $20.8 billion by the end of 2006 as more and more enterprises Web-enable their businesses.

“Enterprises are only just beginning to leverage the full potential of Web-based (and therefore, hosting-based) opportunities,” the report says.

IBM Canada in Markham, Ont., is at