Choosing a host with the most

When looking at the Web hosting industry, especially as a potential customer to a host, there are many factors to consider other than opting for the cheapest option available. Although IT managers can rely on Web hosters for basic operational expertise, they must also carefully evaluate hosted offerings in application management and utility computing.

Throughout most of 2002 and 2003, the Web hosting market struggled through weaker client demand, service provider instability, and falling prices for facilities, bandwidth and basic management services.

Gartner says prices fell as a result of competition between service providers, as well as competition against their customers` IT organisations, which had developed the skills and scale of using Web-based operations.

To survive, Web hosters had to drive down the cost of their operating model, while maintaining or improving levels of support and reliability. The result has benefited clients and service providers alike.

The research group notes that the surviving Web hosters have:

* Increased their financial stability
* Established solid operational capabilities
* Delivered more integrated, innovative services

According to Gartner, companies need to bear in mind that traditional Web hosting services are becoming commodities. Leading Web hosting providers will demonstrate a vision that takes advantage of flexible pricing and delivery models, while empowering their customers with real-time management and analysis tools. Providers that do not build application- or utility-based functionality will not experience revenue growth and risk becoming extinct.

In the early days of the Web hosting industry, businesses and other entities hired Web hosting companies to deliver content, in the form of Web pages and streaming media, to the general public. The Web hosters would provide Internet data centre space, network connectivity and, sometimes, management services for the servers that delivered this content.

We minimise our dependency on Telkom by making sure our networks are redundant and fully triangulated out of our hosting facilities.

Sean Nourse, hosting manager, Internet Solutions.

Since then, Web hosters have increasingly hosted infrastructure used to deliver applications to users on an intranet or extranet, or even on an entirely private network. These applications are delivered over the HTTP protocol.

The client is usually a browser, but is sometimes a lightweight client-side application, often written in Java. Frequently, the applications are updated versions of traditional client-server applications and, indeed, may connect to legacy back-end infrastructure.

Gartner notes that as a result of these expanded capabilities, Web hosters often compete directly with general IT outsourcers, and many outsourcers have significant Web hosting capabilities of their own. Web hosting is part of the general IT outsourcing market. It is closely related to application service provider (ASP) services, storage service provider services and content delivery network services, but is separate from those three markets. It is divided into three segments:

* Shared hosting
* Unmanaged co-location
* Dedicated hosting

Gartner considers "hosting", "Web hosting" and "application hosting" to be synonymous terms.

The research house explains that Internet data centres (IDCs) enable Web hosters to deliver contracted services and are the network hub that holds the servers and content master copies, applications and application data. Web hosters usually locate the equipment they manage in IDCs, though not all Web hosters own IDCs. IDCs are hardened, custom-built facilities, often structured to provide separation between the equipment of different customers, via cages or separate rooms.

This applies in the US, to most countries in Europe, and to an extent the local market.

Sean Nourse, Internet solutions hosting manager, was quick to point out that his company is not dependent on the ISP SAIX (South African Internet Exchange). It does, however, depend on Telkom as a network provider, because it is legally forced to do so. "We have no alternative, but we minimise our dependency on Telkom by making sure our networks are redundant and fully triangulated out of our hosting facilities," he says.

Hans Wencke, CEO of Hetzner, one of the players in the South African Web hosting environment, notes that only the first tier hosts directly depend on Telkom and SAIX (the likes of UUNet and MWeb), but companies like his source their bandwidth from the first-tier players.

Wencke stands up for Telkom, stating that African adoption of Web hosting has been slow compared to Europe and the US, due to the prohibitive regulatory environment. This leads to limited growth on the competitive and technology sides, he points out, but adds that Telkom has taken full advantage of its position in the market.

"As much as we can blame Telkom on the bandwidth cost issue, because local bandwidth is comparatively costly, it is important to also note that SA is outside the mainstream of Internet infrastructure due to its location and this will affect pricing for a long time," he says.

MWeb Business MD Anton Gaylard also believes Telkom`s sole provider status has a major effect on the pricing. He maintains that international competitors are providing the same services and sometimes even better services at a fraction of the price being paid locally.

"Although the cost ratio of second-tier hosts is about one to 34 compared to their German counterparts, the blame cannot solely fall on the fixed-line operator, because other markets are larger and are able to offer cheaper bundled packages," Wencke says.

Nevo Hadas, business development manager at Systemsfusion, says the notion that the second national operator (SNO) would force prices down could be more of a perception than reality.

Having more players does not automatically mean they will get into a price war. It could result in many players trying to get a slice of the pie, he says. However, he maintains the wireless operators like Sentech and WBS will continue to put pressure on Telkom.

Wencke agrees, saying that introducing another fixed-line player is a step in the right direction, but whether it`s a solution will depend on that company`s business model.

"Telkom is currently enjoying good business and the SNO will also want a piece of that action. The change will be a gradual one and initially limited to certain product offerings. Prices will not fall overnight," he stresses.

Nourse, on the other hand, says: "I`m optimistic. I believe it will take a while, but pricing should decrease. At the very least it will give IS [Internet Solutions] true redundancy right up until a network provider level."

MWeb Business and DataPro share these sentiments, predicting a gradual price reduction and not a sudden drop.

How much local income is being lost through the choice to cut costs by hosting overseas? Local authorities` answers vary from "significant" to "minimal".

Nourse says: "We see that customers with very tight budgets and non-mission-critical Web sites (like a family Web site with vacation photos) are moving to the cheaper overseas offerings.

"However, customers running an online business to a South African community, or who wish to maintain their strong corporate image here in SA, can`t afford to move their Web sites overseas due the latency and support issues (dealing with a far-away international company)."

Introducing another fixed-line player is definitely a step in the right direction, but it`s not a total solution in itself.

Hans Wencke, CEO, Hetzner.

Gaylard says the only way to get reliable international bandwidth is to get it over the SAIX, adding that the quality is good, but the monopoly does dictate the high cost, while the satellite option is unreliable.

"My estimation would be that about 20% of the SoHo [small office/home office] business is lost to cheap, offshore hosting companies. It should be borne in mind that this is quite a huge market. The international guys are able to offer them much more comprehensive packages and much lower prices," he says.

DataPro MD Douglas Reed says a price war could lead to a quality drop. The amount of money being lost to offshore hosts is minimal, he says, adding that the deregulation will change things, but the extent of the deregulation will determine its effect.

Wencke also maintains that the losses are minimal and that those who choose the offshore option either do it out of ignorance or are over-cautious about their bottom lines.

What about ASPs and application hosting locally?

Reed says that at the time of the boom, SA missed out on becoming a major player in this space. End-users are demanding more services and turnkey solutions as well as more redundancy (the good kind, in the form of backup) and speed from local ISPs.

Nourse points out that as a tier-one player, IS and its competitors offer everything from simple, cost-effective Web site hosting on shared servers to the hosting of clients` critical applications on dedicated servers in secure racks and vaults.

"We have clients hosting internal applications like SAP for the financials, resource planning and HR, whereby they make use of our data centres with all the redundancy built in and view it as a node on their VPN [virtual private network].

"We find that more and more customers want to deal with one company they trust and know. They don`t want services from lots of different suppliers. The integrated and compatibility benefits become tangible," he says.

"The ASP side has never really taken off locally, but is beginning to pick up gradually with the increase in the demand to host corporate Web sites, brochures, e-commerce products, gambling, auctions, mail order and easing of companies` supply chains," Reed says.

According to Gaylard, ASP services are mostly being hosted locally, unless in specific situations such as when a company needs a killer application that is unavailable locally; for example, workforce automation tools.

With a deregulated telecoms environment will come some changes. Wencke predicts these will come in "dribs and drabs" and will not cause much excitement.

Nourse, however, says it already has. "We have a lot of customers hosting their PABX and VOIP systems in our data centres offering their services to the South African community. I think it is very exciting and has created a totally new market for companies to operate in. We are constantly looking at our customers` requirements and will bring out solutions that they need," he says.

Hadas comments that while there is a great business case for the adoption and deployment of Internet services throughout Africa, the barriers to entry are still high.

He believes a lack of fixed-line infrastructure has restricted the growth of the Internet in Africa and this need creates an opportunity for the operators in the market to gain massive growth by offering ISP services to customers.

The ASP side has never really taken off locally, but is beginning to pick up gradually.

Douglas Reed, MD, DataPro.

Most of the local players see a gradual change in a deregulated environment rather than a "big bang" effect.

It is estimated that there are five major players in the local space. However, IS says there are many companies of varying sizes in the shared Web hosting space, mostly concentrated in the small space.

If industry sentiments are anything to by, the sector is growing. Almost all of the players concurred they have seen significant growth in the hosting business over the past few years.

According to MWeb Business, the growth seems to be concentrated at the bottom end - a clear sign that there needs to be a concerted effort to educate the local market on the benefits of Web hosting.

South African ISP/Web hosting standards are up there with the best of US and European markets, say local hosts. "We are as good as them or even better. We can see this by the amount of multinational companies returning to host their Web sites and servers in SA. Bandwidth is obviously cheaper overseas due to the regulations we have here, but our labour costs and property here are still cheaper," Nourse says.

Gaylard differs, however, saying a major differentiator is pricing. He feels the first-tier pricing is very high and in most cases not justified. "Just look at the international market. How can you justify charging someone 10 times what they are charging overseas for an automated process?"

Internationally, the ASP space is much more vibrant, according to Gaylard, and virtual servers are also becoming popular in the overseas markets.

Other players also say the quality of local service is perceived as being poor, and that SA lags behind other countries in the breadth of service offerings. It seems as though the local players are not as innovative as their US and European counterparts.

Security is also still a major issue, most agree. The exception is Gaylard, who says his company and clients have not seen security as a major concern, because companies nowadays are becoming more proactive about it.

The joy of the Web is that, in theory, it is open to everybody - and with that comes security risks. Players agree customers need to protect their intellectual capital, their corporate image and most importantly their clients from malicious attacks.

There are several popular types of Web hosting:

Shared hosting
In shared hosting, also referred to as "virtual hosting" or "mass hosting", the customer`s content and applications are located on server and storage infrastructure that is shared with other customers. The equipment is owned and managed by the service provider. This infrastructure resides in an IDC. The most typical form of shared hosting restricts the customer to the scripting languages, applications and databases that the hoster permits him to use, but provides a Web-based control panel that allows customisation of features of interest to small businesses, such as a catalogue and shopping cart. A more sophisticated form of shared hosting, known as "virtual dedicated hosting", uses software to simulate a dedicated server in a shared environment. From a customer`s perspective, virtual dedicated servers feel almost like non-shared environments; the customer can install his own applications and customise the setup. Shared hosting products are typically purchased by small businesses that need only a limited Web presence.

Unmanaged co-location
In unmanaged co-location, the customer rents space in an IDC, puts equipment in that space and manages it himself. The customer negotiates a rate per square foot and amount of power provided, and contracts for network connectivity. Unmanaged co-location does not provide any management services beyond remote hands capabilities. This is an excellent choice for customers who can efficiently manage their own systems or who have those systems managed by an IT outsourcer, but who need better Internet connectivity or better physical facilities than their enterprise data centre can provide.

Dedicated hosting
Dedicated hosting encompasses an extraordinarily wide range of options for management services and offers several options for equipment ownership. Indeed, the range of possibilities is sufficiently wide that it overlaps significantly into the general data centre outsourcing space.

It is distinguished from general data centre outsourcing by the following:

* Hosting encompasses only applications and content delivered via TCP/IP networks and which primarily utilise one or more Web services technologies.

* In hosting, there is no transfer of assets or personnel to the service provider. Either the customer or the service provider can own the equipment.

* In hosting, the service provider assumes responsibility for operations only. It does not own the business process, nor does it provide strategic direction to the customer.

* Operational responsibility does not include any custom applications. A hosting provider will, for instance, restart the PeopleSoft server; it will not customise PeopleSoft itself, nor will it debug application code.

Some Web hosters are also general management service providers and will provide these kinds of services in enterprise data centres. Gartner considers Web hosting to include services provided only in IDCs, whether owned by the service provider doing the management services or owned by a third-party IDC provider.

In addition to the typical benefits of outsourcing, such as freeing the business to focus on its core competencies, Web hosting provides several key benefits:

* Secure, high-quality physical facility
* High-quality, redundant Internet connectivity
* 24x7 support and operations personnel
* Access to deep expertise with the supported Web technologies
* Availability guarantees backed by SLAs

Web hosting also usually offers cost savings, together with more rapid technology refresh rates and the ability to eliminate most, if not all, of the capital costs associated with the outsourced systems.

Yet there are also risks associated with Web hosting:

* As with other forms of outsourcing, the customer loses a degree of control. The risks are greater with shared hosting than with co-location or dedicated hosting, as shared hosting customers are sharing computational resources as well as network bandwidth with others, creating the possibility for impaired performance due to other users on the same system.

* Furthermore, not all Web hosters have achieved stable businesses. Some independent Web hosters are on precarious financial ground. Some carriers with Web hosting divisions have not firmly committed to the future of those businesses, creating the potential to sell or close down those divisions in the future.

Source: The information in this section has been paraphrased from a report, Web hosting: An overview, compiled by Lydia Leong, a principal analyst at Gartner Dataquest.