Telcos Hang Up, But Hosting Providers Still Bullish On Market

C&W cited a slump in demand as a reason for its departure from the United States, while Sprint said the hosting market was not mature enough and too costly a business to support.

While many hosting providers agreed that the hosting market is still immature, they said the downfall of telcos in the space stems from a lack of focus.

"[Sprint's and C&W's departure] is a strong signal that traditional RBOCs and telecom companies whose normal and primary focus is on long-distance, data and in-region telephone and wireless services do not fare well in a marketplace that requires value-added solutions and services with a laser focus on them," said Craig Schlagbaum, vice president of channel sales, enterprise hosting and broadband at NTT/Verio.

Others in the industry echoed Schlagbaum's sentiment but added that telecom companies faltered because they went after the wrong marketplace and viewed hosting as an afterthought.

"I've always felt that the entry by telco and bandwidth providers into Web hosting was flawed," said Tiffani Bova, vice president of sales and channel programs at Web hosting company Interland, Atlanta. "They thought that hosting would lead to more bandwidth business for them but went after the [Fortune] 1000,a market that doesn't grow and is too expensive to support."

Sprint, for example, said that for every dollar it made on its hosting business, it spent $3 to support it.

The small- and midsize-business markets are the sweet spots in which companies such as Verio, Interland and NaviSite play, and hosting demand in these markets continues to rise.

Rob Goble, CEO of Scottsdale, Ariz.-based master agent Venicom, for example, recently won a hosting deal for Verio that stands to bring in $250,000 per month initially and $500,000 within six months as Venicom adds new locations.

"It's a healthy market, and I'm excited about Cable & Wireless and Sprint because that just increases the ability for those left behind to get more deals like the one we just closed," Goble said.

As for growth at Interland, second-quarter 2003 customer add-ons for both shared- and dedicated-

hosting customers increased by about 10 percent vs. first-quarter customer add-ons, Bova said.