MOST companies worldwide do not have a website or are not yet able to handle e-business transactions and this is creating a mammoth opportunity for Web hosting.
Analysis and consulting company Ovum says vendors are optimistic that the market will adopt sophisticated, dedicated hosting but most companies are just testing the waters at the low end of the market.
“They are not getting the message about Web hosting benefits and are often confused about what provider to choose, and what level of service to sign up for,” senior analyst Christina Kasica says.
Ovum spoke to more than 5000 companies in three regions, discovering some surprising facts about the Web hosting market.
Of those interviewed, 56 per cent of companies in Western Europe, Asia Pacific, and the United States do not have a website at all. Of those that do, only 14 per cent use Web hosting – and three quarters spend less than US$ 25,000 (NZ$ 55,000) on such services.
Ms Kasica says factors such as history, control and prudence drive decisions to retain in-house control of Web resources rather than consider outsourced services such as Web hosting.
“Our research indicates this market is much less mature than people think, and highlights an expectation gap that it will be easy to stumble into Web hosting without careful planning.”
Regional differences are significant, Ovum found, particularly in Western Europe, where Web hosting is being adopted at a fast rate.
The main users of Web hosting such as big corporates, dot-coms, and rental ASP service providers almost always save time and money by hosting their sites externally, Ms Kasica says.
“Using Web hosting allows companies to get complex sites up and running in a matter of days. Today’s complex sites also require high levels of up-time, performance, security and availability. Web hosts can guarantee those things in ways in-house provisioning cannot, so the there is massive revenue potential for the service specialists.”
Ovum is predicting that the overall value of the global Web hosting market will more than quadruple by 2006, from about US$ 10.3 billion now (NZ$ 23 billion) to US$ 46.9 billion. It says the most rapid growth will occur this year and in 2002, with organizations in the United States and Canada being the biggest spenders on Web hosting services.
For the moment, Ms Kasica says many companies with websites (both users of Web hosting and those that host their sites internally) have a basic Internet presence that represents opportunities for service providers.
Important market drivers include the lack of ability by 60 per cent of the companies Ovum interviewed to support e-business transactions from their websites.
Those providing Web hosting need to iron out wrinkles in their service abilities before they can fully take advantage of this trend, however. Ovum found that companies already using a Web host sometimes experienced difficulties such as slow response times, unacceptable downtime, inadequate technical expertise, high costs, insufficient bandwidth, failure to respond to customer requests, and poor account management.
But 90 per cent said they were positive about Web hosting and that the benefits outweighed these problems.
The main benefits cited by Web host users were better efficiency, cost savings, access to customer support, extended market reach, improved security and control, stronger sales and differentiation from competitors.
“On balance, this high level of satisfaction is a good omen for the increased adoption of Web hosting and market growth in the next five years,” Ms Kasica says.
In a research report prepared for Ovum, Ms Kasica and co-authors Jean Leston, Nadia Khair, Mark Jacobson and Robin Hearn say Web hosting is a phenomenon that spans the converging worlds of telecommunications and IT.
“It arises out of the hardware-oriented concept of a telecommunications hotel, that is to say, a secure physical plant in which network infrastructure such as routers, switches and servers are housed,” Ms Kasica says. “Increased data service needs resulting from Internet demand, have created a corresponding need for applications services from telecommunications hotels and data centres.”
Web host providers are a subset of this market, she says, and include telcos, Internet Service Providers, hardware vendors, and Internet specialists. Systems integrators and Web design firms often partner with hosting providers to develop sites for their clients and may sometimes deliver hosted services.
As more organizations rely on the Internet to attract and provide services for customers and to support supply chain relationships, their use of Web hosting will increase.
Ms Kasica says such companies can’t afford to risk downtime, lack of availability, performance and security breaches, or the effects of such problems – loss of revenue, customer loyalty and goodwill.
Online auctions, online sharebrokers, and financial institutions performing transactions online are especially vulnerable to these risks and often rely on extensive in-house IT resources to avoid them. But often these investments are not feasible for new organizations, ASPs, or bricks-and-mortar companies entering the realm of e-business, or dot-coms with good funding but few staff or patchy IT capability.
“The expertise of Web hosts, guaranteed by service level agreements, is a solution.
“There is no good reason why an organization itself should install or run its own website,” Ms Kasica says.
Despite Ovum’s glowing forecast for Web hosting services, there is confusion about the market’s overall direction. Most of the global market is still delivering basic services such as support for first sites, or helping organizations take tentative steps toward e-business. Opportunities in high-end Web hosting are most obvious in the United States, with strong competition from a “do it yourself” market in the United States and Asia Pacific.
Ovum’s research reveals that Web hosts, ASPs, infrastructure providers, Web application providers, and integrators are all offering e-businesses bits and pieces of what is needed to deliver a rich website.
But Ms Kasica says no one offers turn-key services suitable for all levels of the market and all budgets.
“E-businesses are becoming aware of the need to wield their websites more powerfully. Some technologically sophisticated companies have already begun this process. As this trend develops, more e-businesses will turn to Web hosts and other players. But even these companies are proceeding on a trial and error basis, choosing providers almost at random as they mount a website or make an existing site more functional.”
“Generally the market is not well educated and does not widely understand the value proposition Web hosting companies are offering. . . . There is a vast global market at the fast food level, while Web hosting companies are fixing to offer gourmet feasts. The speed at which organizations will adopt complex Web usage is uncertain at this stage in an immature market.”
Ovum says the use and average expenditure of Web hosting in the business communities of the regions it studied, is evenly spread across all industries. “Sweet spots” in the market – those most savvy about Web hosting and willing to spend the most on such services – include banking and finance, travel and transportation, entertainment, healthcare, services, and media.
“The current Web hosting market is the tip of the iceberg,” Ms Kasica says. “Fifty-six per cent of companies we talked to do not even have a website. This represents a large unavailable market. Of those companies that do have a site, most companies worldwide are providing it themselves. Only 14 per cent of companies with websites are using Web hosting.”
New Zealand organizations can choose from a smorgasbord of Web hosting services. Most telcos, ISPs, integrators, outsourcing specialists, and e-business companies already offer Web host services. Options range from full outsourcing (including site design and administration) to shared management of the technical resources used to support a website.