TORONTO — Managed services will eventually take a larger portion of the hosting market than colocation services, according to hosting provider WorldCom Inc.

The company opened a data centre in Toronto in November — one of 17 it has opened across the globe this year. There’s plenty of space still available within its data centres, said Ron McMurtrie, vice-president of e-business, and the company is investing in infrastructure and real estate now in the hopes the market will continue to grow.

WorldCom has spent $1.2 billion worldwide on its data centre expansion program, $21 million of that in Canada. WorldCom also has centres in Vancouver and Montreal. “We’re spending now for a five-year horizon,” said McMurtrie, adding the company anticipates the Canadian market alone will expand to $2.5 billion by 2006.

The company offers Web hosting services, IP-VPNs (Internet virtual private networks) and Web-enabled call centres. Eventually it will add storage solutions. A major part of WorldCom’s planned expansion will come through offering customers completely managed services rather than colocation, whereby clients supply their own servers. Via this model, a host will send a data packet or “ping” to ensure the servers are running, but the client is responsible for their own maintenance.

At present, one-third of WorldCom’s Canadian clients have opted for managed services versus two-thirds for colocation. McMurtrie estimates the global percentage is closer to 50-50 and the balance is tipping towards managed solutions.

“We think . . . the purchasing process has to change (to) a mass productizing of managed services,” he said. WorldCom anticipates a quarter of its growth will come from up-selling existing customers from co-location to managed hosting.

Small and medium-sized companies are likely to gravitate towards a managed solution because they may not want to invest in equipment or technical expertise, said Dan McLean, an analyst with Toronto-based IDC Canada. “I think a hosting services can wrap a lot more value around a managed service rather than a colocation service,” he said. “With colocation they can offer monitoring, but the ultimate responsibility around management — problem resolution, for example — would still rest with the owners of the equipment.”

The hosting market, however, hasn’t always been so rosy. In October, American hosting company Exodus Communications Inc. sought bankruptcy protection. The company made its fortune hosting for dot-coms, but blamed its recent fiscal troubles on the collapse of that industry. At the time, Mark Quigley, an analyst with Ottawa-based Yankee Group in Canada, also pointed out that Exodus had expanded extremely quickly across North America based on its first flush of success, but didn’t have the market to warrant this outlay of capital.

Now WorldCom is spending more than a billion dollars in expansion, but its target is largely enterprise customers and the growing small to medium-sized business market. But WorldCom is not the only hosting company undergoing expansion — competitors like TeleGlobe, PSINet, 360 Networks and in Canada Q9 Networks are also building, says Quigley, which leads to an overabundance of capacity. But the rise of managed hosting and the addition of services may keep the hosting business healthy, he added.

“Companies that needed one rack of servers in the past all of a sudden need two or three, so there’s that kind of increase in traffic that drives an increase in traffic for the hosting providers as well.”

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