Asp hosting u web

The holiday '98 crunch may prove to be the crucible that prompts even more Web sites to outsource their Web functions. Already, Web hosting is growing at a sizzling pace.

Worldwide revenues of U.S.-based Web hosting providers are forecast to nearly double in each year until 2002, growing from $414 million in 1997 to nearly $12 billion for a phenomenal compound growth rate of 95.5%.

Times are changing. The movement toward Web hosting is turning old axioms on their heads. Once the prevailing wisdom was that it was OK to outsource mundane applications such as payroll. Now, however, Web hosting is blazing a path became the applications, especially those in eCommerce, are mission-critical and need rapid application of skilled firepower to do the following:

* Gain leadership status in the new competitive commerce arena

* Leverage the Internet to maximize business processes and increase profit margins

Web hosting and the related field of application outsourcing bear remarkable resemblance to service bureaus. Remember them? Although the industry is reluctant to resurrect the term, the fact is Web and applications hosting are service bureaus in '90s clothing.

Outsourcing, especially Web hosting, is reemerging as a key strategic tool. eCommerce appears as one of the leading-edge applications through each of the relevant markets.

DRIVERS

Some of the key drivers of the Web hosting trend include:

* eCommeree and its needs for rapid scaling and failure-proof performance (Think of the holiday '98 crunch.)

* Public face: The recognition that a finns Web presence is a critical element of how it is perceived by the public (And first impressions count - a lot.)

* Rapid pace of technological improvements and the competitive need to capitalize on them

* Performance:

* The pursuit of bandwidth by being near a network access point

* Sophisticated techniques such as load leveling, etc.

* The need for expertise that stays current

There are also the usual motives for outsourcing, such as focusing in-house staff on existing projects and leveraging economies of scale available to the hosting company.

Similarly, on the supply side, Internet service providers (ISPs) are facing consolidation and are looking for value-add services. The application service providers, another category of player, want to create a more level revenue stream through usage fees and are linking up with telecommunications finns, ISPs, and others.

HOT MARKET

The Web hosting market is ablaze. International revenues for U.S.-based providers are expected to zoom from $414 million in 1997, and an estimated $770 million in 1998, to $11.8 billion in 2002 [ILLUSTRATION FOR FIGURE 1 OMITTED]

The annual growth rates are expected to accelerate after companies have completed their Y2K efforts and can apply more of their budgets to Web hosting. The forecast assumes that Web hosting services will continue to integrate Web hosting solutions with existing business processes, thus yielding opportunities for additional revenues from systems integration work.

In calculating Web hosting market revenues, IDC excluded Internet network revenues such as those garnered by ISPs for offering dial-up Internet access. IDC's report Web Hosting and eCommerce Service Providers (#16894, October 1998) details the market as well as its key players Some of the key growth drivers in the Web hosting market are:

* eCommerce (both business-to-consumer and business-to-business)

* Corporate intranets

* Web marketing sites

DEDICATED AND SHARED SERVICES

The Web hosting market consists of two different types of services, shared and dedicated, with the latter being the larger segment and growing at a more rapid rate.

The shared service consists of customers sharing hosting facilities such as servers, while the dedicated service offers customers their own servers.

The dedicated portion of the market consists of two subsectors: colocation and complex/custom.

The shared service sector will grow at a compound annual growth rate (CAGR) of 83.2% between 1997 and 2002. Smaller companies that have Web sites for marketing purposes are often customers of shared services. These sites rarely graduate to dedicated service, which tends to be used by sites that interact with customers and/or suppliers.

Given the demands for ensured performance, the hottest part of the market is for dedicated systems, which offer customers their own servers. Dedicated systems already hold the major share of revenues with 57%, and they will represent 69% of the Web hosting market by 2002, with a CAGR of 103%. [ILLUSTRATION FOR FIGURE 2 OMITTED]

By 2002, revenues for dedicated Web hosting should reach $8.17 billion, while shared Web hosting, at $3.65 billion, will be less than one-third of the total.

Within the dedicated portion of the market, the colocation category consists of firms that place their own servers at the site of the Web service providers, usually to take advantage of better bandwidth that may be offered by proximity to network access points. Customers' own personnel administer the servers and the Web sites.

The complex dedicated hosting market segment is product-oriented; the custom hosting market segment is more service-oriented and is designed to offer individualized sites for the clients that are also linked to key business systems.

The Web hosting provider has opportunities to offer systems integration in each type of Web hosting implementation. For example, IBM Global Services is finding that after customers have mastered simple sites and "brochure ware," the next level of business value involves reengineering business processes.

PLAYERS

As with any emerging market, there is no dearth of players in the Web hosting arena. However, in 1997 a sizable chunk (40+%) of the market was in the hands of the three largest players - IBM Global Services, AT&T WorldNet, and WorldCom Advanced Networks.

The players come from a myriad of backgrounds. The roster includes

* Platform providers such as IBM

* VARs and systems integrators such as EDS et al.

* Application service providers such as Sterling and Open Market

* Network service providers such as AT&T, Worldcom Advanced Networks, and GTE

* ISPs such as Digex, Exodus, Navisite Internet Services, Hiway Technologies, and Mindspring Enterprises

WHO'S BUYING ?

Web hosting customers include the following:

Digex - U.S. Postal Service, U.S. Navy Intranet, Martha Stewart, Japan Airlines, J. Crew, Nike, Anheuser-Busch, TWA, Forbes

IBM Global Services - Merrill Lynch, Smith Barney, Goodyear's dealer extranet, Candle Corp. (the candle maker)

Epoch - Motorola, Reuters, Hughes, Virgin Interactive Entertainment, Mirage Resorts and Hotels, the American Red Cross, C-SPAN

WEB SELLERS OUTSOURCE

As part of IDC's report Web Sellers Speak: Learning from the Leaders (IDC #17973, January 1999), IDC interviewed companies judged to be leaders in eCommerce. Nearly half (44) of the 100 online commerce companies interviewed are using outside Web hosting services. These statistics are not projectable, but they certainly are indicative of the impetus eCommerce provides for Web hosting.

Performance or bandwidth (64%), support and availability (50%), and cost (50%), were the three most frequently mentioned reasons for using a Web hosting service [ILLUSTRATION FOR FIGURE 3 OMITTED].

APPLICATIONS VENDORS WANT IN

Among the species of players entering the market is what IDC calls the application service provider (ASP) - essentially, a software firm linking with third parties such as outsourcing firms, telecommunications companies, and ISPs to provide remote access to its applications and broaden its base to smaller customers.

Here as elsewhere, eCommerce is one of the leading applications. Some players are more aggressively pursuing this market than others. For instance, Open Market has licensed its Transact software to about 30 firms through its Commerce Server Provider program. Transact software performs order management for Internet commerce.

Among Web hosting players offering eCommerce software from third-party providers: AT&T (providing software from Open Market and Order Trust), Internet Commerce Services or ICOMS (providing software from Open Market), and U.S. internetworking (providing software from Broadvision and Netscape).

IBM Global Services is busy lining up a range of software to provide services in both eCommerce and ERP. IBM has been surprised at the number of large eCommerce sites for which it provides hosting. These sites have recognized the need to satisfy the unpredictable demand for increased capacity.

IBM Global Services has said its Web hosting revenues are growing in the triple digits. Many of its large retailing customers saw sales jump by 300% or more in 1998 compared with 1997.

By adding the ASP channel with usage fees, software firms are hoping to access a more predictable revenue stream.