Are the newer players in the hosting industry all washed up

Are the newer players in the hosting industry all washed up, or can they top the charts again?

By: Hosting Tech

If you are still in the hosting industry, chances are you feel a bit like one of those aging rock bands on VH1’s Behind The Music (www.vh1.com). The hits came so easily in the early days. The excitement of the first round of venture-capital funding, your company’s first coverage in The Industry Standard, and finally the top of the charts — money, cars, and excess. Then people stopped buying your records, and the accountants came calling. Lawsuits, bankruptcies, advances had to be paid back, and the drummer did not make it to the second commercial … then the band you made it with broke up.

Now it is act three for the hosting industry: older, wiser, maybe not the glamour-puss of the technology industry, but living within its means and happy just to be around. All your friends didn’t make it, but you are still looking for your next hit. So what is next for hosting?

Consolidation at the top
If there is one thing analysts seem certain of, it is that traditional Old Economy players will soon dominate Web hosting for large enterprises, if they are not already doing so. The iconoclasts of the early days of Web hosting have started to trade their blue jeans and t-shirts for slacks and ties faster than you can say Jerry Rubin. In the short-term, customers are frightened of newer companies because of market instability, preferring providers that they know will be around longer than Debbie Gibson. “For the next 24 months, clients will look at well known brands,” says Gartner hosting analyst Ted Chamberlin (www.gartner.com). “If you’re not a known name, things are going to be tough.”

In the long-term, companies like IBM (www.ibm.com), EDS (www.eds.com), and Hewlett- Packard (www.hp.com) might solidify their advantage with the development of grid computing, an emerging technology facilitating utility computing that is out of the reach of smaller providers with limited R&D budgets. “There is a tremendous amount of interest in the utility model, and companies that can bring a utility model to market are really going to succeed,” says Marc Jacobson, analyst for Ovum (www.ovum.com). “It’s yet another reason why this market is going to consolidate around a handful of players.”

The big boys are not content with just their traditional Fortune 500 strongholds, either. Slowly, the high-end players are seeking a share of the small to midsize enterprise (SME) market as well. EDS was burned when MCI, a major client, went Chapter 11, and the enterprise-oriented giants have begun to see the value in diversified revenue streams. “These companies realize that when you rely on one company for 5 percent or 6 percent of your annual revenues, you’re really exposed if something goes wrong with that client,” Jacobson says.

Although there is little doubt the Old Economy players will dominate the high end of the hosting market, there is a great deal of doubt they can do the same from the middle down. There, analysts say, lies the best opportunity for the younger, newly emerged hosting companies.

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