Web hosting to become a battlefield

A new IDC survey reveals that Canadian Web hosting services are on the verge of something big.

Released Thursday, the IDC survey, Canadian Hosting Services: Your Place or Mine, found 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 survey confirmed hosting as being among the top outsourced services according to IDC research analyst Dan McLean.

“Basically, if they can’t do it better than you are doing it, and at a cheaper price, there is no point,” he said.

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,” McLean said.

According to the survey, IBM is the emerging market leader in Canada and is positioned for more success in the coming months with US$1.7 billion in hosting customers so far this year, double the amount of one year ago.

“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.”

Paul Lovell, general manager of e-business hosting service at IBM Canada said a different approach to this market would help his company get more share in the market, which is worth $336 million this year and is expected to grow by close to 20 per cent a year through to 2005.

“If you are focused on the business solution itself, you are going to get to market faster,” Lovell said. “The business reason comes down to the customers ability to focus their scarce resources – their people, their time, their capital – on the specific strategies that will enable their bottom line revenue growth. Focus your scare resources on those and let someone else take care of this. That is a more cost effective method than doing it in-house.”

Andrew Stewart, chief technology officer at CompanyDNA, a provider of online reward and recognition solutions, said identifying what his company needed was a “no-brainer.” He needed connection and power redundancy and physical and network security. He said IBM demonstrated that it could supply those needs.

“It was important that we wouldn’t have to change in 12 months,” he said. “The name doesn’t hurt either. Hosting, for us, is important, but we don’t want to have to think about it once it is in place.”

IBM Canada in Toronto is at http://www.ibm.ca

IDC Canada in Toronto is at http://www.idc.ca

CompanyDNA in Toronto is at http://www.companydna.ca