THS Articles

Web Hosting’s Third Wave

By Alex Lekas

A web designer from Albemarle. A computer hardware dealer from Wisconsin. An Internet marketer from Washington state. They were among the Internet entrepreneurs who spent a November weekend in Fayetteville, North Carolina at a customer conference organized by hosting company AIT (http://www.ait.com).

AIT has conducted these conferences for years, with the itinerary and attendance growing each time. From the tech-heavy material during the early-adopter days of the Internet to the increased emphasis on packaging technology as a business utility, conferences have mirrored the maturation of the industry. “Our resellers are working with customers and potential customers who want to see the value of digital services; the conferences give us the opportunity to show our resellers how to do that,” said Kirk deViere, AIT’s Chief Operating Officer.

The two-day sessions are a lively mix of hands-on product demos, strategy sessions, Q&A, technical instruction, and more. Jim Hatley has been an AIT reseller for about five years and is typical of the entrepreneurs who incorporate the company’s hosting and eCommerce services into their businesses. Hatley’s primary business is Web design, and the reseller program means additional revenue sources. “There is no substitute for the recurring revenue model,” says Hatley. “After you design a Web site, the relationship with that customer basically ends, aside from periodic touch-ups. They’re going to need the hosting and other services anyway, so it makes sense for them and for me to build on an existing relationship.”

The VAR approach comes at a time when the Internet in general, and Web hosting in particular, is approaching a third wave of customer adoption. The first wave centered on a technically knowledgeable customer who frequently needed little more than power and Internet connectivity. As the second phase – sales and marketing professionals who understood the business utility of the Internet – began to take hold, the digital shakeout hit. Data centers built in anticipation of rapid growth were suddenly shuttered; several providers went out of business, selling equipment for pennies on the dollar; and, the companies left standing discovered there are times when treading water is a good thing. “In the long run, that period provided a necessary dose of reality,” said AIT’s Chief Executive Clarence Briggs. “It forced us to re-think our strategy and anticipate the industry’s revival.”

Low-cost dedicated servers have been a part of that rebirth. So has a renewed emphasis on product development, in response to hosting customers who began demanding more from their service providers. “This has been a year of innovation because hosting itself is becoming a commodity,” according to Briggs. “Every hosting company provides disk space and bandwidth; the challenge is to also give customers value through tools that help them and their customers be successful.”

Industry-wide, companies have pushed out anti-spam software, marketing tools, Web site templates for easier and less expensive design, security features, and more. It is part of the continued push to capitalize on the small and medium business market, a segment that is much more likely to outsource IT responsibilities than big corporations are. Paul Payne of Treasure Island, Florida, sees that first hand, selling digital marketing materials like brochures, catalogs, newsletters and magazines to clients in a cross-section of industries. “This is the type of outsourcing the public doesn’t hear about, the type through which companies save money,” says Payne. “My customers all need to market their services, but they don’t need to hire a full-time staff to produce their materials.”

With small to medium business as the key market for service providers – representing the third wave of hosting customers – resellers like Payne are in an ideal position. The next adopters of digital tools are the ‘show-me’ type, the ones who are skeptical about the virtual as a viable business. As a rule, hosting companies tend to be remote providers; there is no such thing as an Internet presence and eCommerce storefront, not yet. Resellers can rely on a provider’s infrastructure and tech support personnel while adding the personal touch that comes with being where your customers are. “Mine is a small town, so when I call on a potential client, chances are they either know me personally or know some of the same people, so the initial trust barrier is easier to overcome,” says Hatley. “After the sale, customers won’t become account numbers; I can actually service a customer as opposed to simply providing that customer with a service.”

Helping to make the case for resellers like Hatley is the continued growth of eCommerce. For example, Forrester Research reports that customer eCommerce spending will lead the IT spending charge in 2004, growing by 4.8 percent. In fact, Forrester estimates that three-fourths of companies will maintain or increase their IT spending for eCommerce initiatives based on a survey of 212 eCommerce decision-makers. In-Stat/MDR estimated that small business IT spending totaled $161 billion last year and would reach $215 billion by the end of 2008.

Staying relevant was a major topic at the AIT conference, and one way that resellers are doing that is by forming alliances that bring complimentary skills together. That’s what Paul LaFlamme did during the spring conference. LaFlamme is from Savannah, Georgia, and describes his business as having shifted from a Web design company that offered hosting to a hosting company that offers design. “I met a programming specialist from Ohio at the last conference,” said LaFlamme. “We talked just about every day after that, and so far, we’ve built a site for a travel company and have other projects in the works.”

It is a powerful combination – the industrial grade infrastructure and technical staff of a core services provider, and the personalized service offered by resellers – that has a proven track record. That record will be tested as SMBs wade further into IT waters. Still, the opportunity for growth is there, something that is a given in this industry.