From a shortlist of three blue chip IT players, European competitive local exchange carrier Colt is expected to announce a global partnership for web hosting, whereby the management of business websites is outsourced in purpose built data centres,by mid May. Of GBP725 million raised by Colt in March, GBP155 million will be invested in projects related to web hosting in the next 14 months, say sources at the company. Dell is thought by analysts to be the most likely partner for Colt as the IT company has fewer links with telecommunications carriers than others IT players. Morgan Stanley Dean Witter estimates that GBP529 million will be generated from web hosting by Colt by 2004 (see table on page seven).
Colt is not alone in extending its product offering to include web hosting forbusinesses. More than $ 5.5 billion (GBP3.4 billion) will be invested in web hosting over the next five years. Among these are BT and AT&T (through Concert),Cable & Wireless, Colt, and KPN Quest (Telecom Markets, 381/11). US-based web hosting specialist Exodus, which has no links to a specific carrier, is also looking to expand into Europe. Morgan Stanley estimates that it will have 500,000 sq.ft of space by the end of 2000.
According to Morgan Stanley, by the end of 2000, Mannesmann, is expected to have 450,000 sq ft. of web hosting space available and, by the end of 2002, KPNQwest will have 500,000 sq. ft. of capacity.
According to Cable & Wireless, the market for web-hosting services will increase to $ 23 billion (GBP14.3 billion) by 2002 from $ 3 billion in 1999.
At its simplest, web hosting involves the provision of housing for the hardware and software of businesses’ own equipment, with the carrier providing a protected power supply and high bandwidth to the customer’s hardware. A more advanced offering involves the operators owning the equipment within the web-hosting facility, and managing the hardware and the content that it carries.
Other operator plans extend the web hosting model to the provision of softwareand hardware applications to its corporate customers. One such operator is Global Crossing. Global Crossing has created a separate division, GlobalCenter, which is planning to become an Application Service Provider (ASP) whereby software and applications will be provided to companies on the remote web sites it manages. European carrier Equant has a similar strategy which generated application services revenues $ 5.2 million (GBP3.25 billion) in the third quarter of 1999, an increase of 27.1 per cent on the same period in 1998. GlobalCenter will be floated separately in summer 2000 to raise further capital for the division. GlobalCenter is in the process of building two data centres in California to provide 150,000 sq. ft. of web-hosting space.
Most carriers fall short of planning to move into the market for application-service provision. Analysts suggest that the integration of the web-hosting centre with the fixed-line network of the carrier may be used by operators to keep their customers on their networks, in the light of increasing treatment of bandwidth as a commodity and falling prices. Within Europe, the average price for a standard 2Mbps connection is expected to fall by 30-50 per cent annually for the foreseeable future, says Forrester Research.
With business users increasingly able to switch between carriers at short notice, linking networks directly to data centres guarantees that customers will stick with the carriers that provide the management of the web site data services. For those using external web-hosting facilities, IT and support costs can be cut by up to 30 per cent.
Strategies towards web hosting and the sophistication of the offering vary, but most involve tie-ups with major IT players and the acquisition of ISPs that already offer limited hosting to the content providers that they service.
UK-based carrier Cable & Wireless has adopted a strategy of acquiring Internetservice providers which already have small data centres of their own. Cable & Wireless has acquired 12 ISP across Europe, eight of which have been bought in the last six months in Austria, Belgium, France, Italy, Spain and Switzerland.
On top of this, Cable & Wireless is planning to build 20 data centres around the globe. The company so far has one data centre in the US and is building a second on the West Coast, and is in the process of building 138,000 sq. ft of web-hosting space in the Swindon area.
KPNQwest’s foray into the web-hosting business will be through a $ 1 billion (GBP0.62 million) tie-up with computer conglomerate IBM.
Under the terms of the deal IBM will construct 18 so-called cyber centres, each with a capacity of about 10,000 sq.m, adding to the 12 cyber centres KPNQwest already has across Europe. IBM will be operating the centres on KPNQwest’s behalf. IBM has agreed to lease back 25 per cent of these centres so that KPNQwest is able to supply its own customers with e-business as well.
Prior to the IBM deal, KPNQ also joined forces with US based e-business applications provider Open Text Corporation. KPNQ’s network of cyber centres across Europe will be able to securely host Open Text software providing e-commerce solutions for its clients through intranets, extranets and e-communities. KPNQ will be able to leverage these services from among its 100,000 business customers, while Open Text can also market the product to its 1 million users across Europe.
UK-based pan-European CLEC Colt Telecom will move towards an ASP but falls short of full ASP provision: “We see ourselves as an ASP enabler,” explains a Colt official, “providing transport, access, collocation, servers, diagnostics, caching, video and audio streaming, and moving towards systems integration. But that is where we stop. We recognise we don’t have all the skill sets to provide the top-end of the ASP services. At that level, we would be seeking to work closely with software companies to support ASPs in their services to the customer.”
Colt has four web-hosting or cyber centres currently operational in London, Paris, Amsterdam and Frankfurt and hopes to have 12 up and running by year-end.
In spite of the significant funding behind web-hosting initiatives, Andrew Parker, senior analyst at the European technology group of Forrester Research, and author of a forthcoming report on web hosting, notes that the pricing model for web hosting is not stable and there will be downward pressure on the prices that operators are able to charge for the service. But for the moment, carriers are finding that web-hosting space is filled as soon as it becomes available, and since the projects on the drawing board will take at least two years to complete, this may continue for some time.
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