The SME market

The SME market:

By: Hosting Tech

Hope for the underdogs
In the middle-market, hosting providers can get by with a smaller range of services and can undersell the competition. Smaller companies are also more willing to take a chance on a newer provider with a good price, solid service level agreements, and good customer service. In the SME world, says Aberdeen (www.aberdeen.com) analyst Dana Tardelli, resource pooling, automation, and pricing count for more than having an array of value-added services. “Not everyone is going to be willing to pay top-dollar prices, and the IBMs, EDSs, and CSCs aren’t going to be willing to have wholesale models,” Tardelli says. “There has got to be a middle ground. Look at a player like Rackspace. They have tried to automate as much as they can and they manage their resources and people as best as possible.”

There is another upside for companies who might not have the range of services or history, but are efficient: Not every large company has complex hosting needs. Chamberlin offers the example of a pharmaceutical client in the Fortune 500. The company is not allowed to sell its prescription drugs online, and as a result, it only needs a website that provides information on the company — giving an opportunity for smaller providers to snag a major customer from the jaws of a larger player.

Jacobson thinks the SME space will remain the battlefield for newer companies. In his view, companies must either focus on automation or on value-adds, because it is nearly impossible to straddle the fence. “I think you’ll have to decide whether you’re going after the large enterprise market with really sophisticated applications and managed services needs,” Jacobson says, “or you need to go after the lower end of the market with more of a shared-type offering and pursue the SME population, which has less sophisticated e-business needs. There are a couple companies that can serve both ends of the market, but basically you’re going to have to decide which end of the market you want to play in.”

Even lower down in the market are regional hosting providers, whom some analysts say will emerge as a force in Web hosting. These providers are nimble and take on little risk, due to strong local connections and a personal touch in customer service, balanced by low overhead (in some cases, because they are renting space in a larger company’s datacenters). “I think one of the stories you’ll see emerge over the next three years is the success of regionally focused integrators and/or ISPs that have brand recognition on a regional level and relationships in place, with, say, the 300-person steel manufacturer in Iowa,” Jacobson says. “Those types of contracts are lucrative when you add them all up.”

Surviving the final cut
The best news for hosting providers who are still around is simply that they’re still around. There will likely be more attrition, but the worst is over, and those left standing do not have to worry about much more competition arriving. As Chamberlin points out, the investment community is not likely to go gaga over Web hosting again anytime in the near future. With little venture capital, a new hosting outfit would have to turn a profit in record time. “If you don’t have a sugar daddy, you’re going to need strong financials,” Chamberlin says.

Some hosting die-hards will no doubt brave the conditions and try. SiteSmith founder Treb Ryan, for one, is said to be working on another venture. There is also another set of potential hosting powers that still weigh heavily on the minds of industry players: the telecoms. Chamberlin expects the ailing telecom industry to be back in decent health and aggressively seeking hosting market share by 2004. Aside from the telecoms, there is one other company Chamberlin is keeping an eye on. “As much as Microsoft says they’re not going to join the fray as a service provider, I think they will,” Chamberlin says.

With the field largely set, the survivors have a lot to look forward to — An economy that has likely bottomed out, stabilizing prices for hosting services, and an industry that is maturing. “Once the economy strengthens, enterprises that shelved anything having to do with e- commerce are going to take another look at it and say, ‘Now we have a little more money, things aren’t that bad, and we have to get on with driving revenue,’” says Chamberlin. “They’re going to look to service providers to help them. The hosts will be there.” They’ll be there, and just as most rock stars who used to pack arenas learn that there is money to be made at festivals and state fairs, the former darlings of the tech industry are learning that you can’t always get what you want, but sometimes you get what you need.

<<Back>>

Other Related Links