IDC forecasts 22 per cent growth rate for Web hosting

Despite a recent series of bankruptcies and buyouts, the Web hosting market in Canada is poised to entertain more growth and more players before it fully consolidates, according to IDC Canada analysts.

At an IBM Canada Ltd.-sponsored event Tuesday, senior analysts Dan McLean and Jason Bremner said the Web hosting market has yet to experience its full flurry of growth. They predicted the market’s continuing growth rate – pegged by IDC at 22 per cent per year until 2005 – will attract more players to the market before it reaches stabilization and consolidation.

“Web hosting has growth to go,” Bremner said. “As companies move more and more of their business online, the more complex the infrastructure needed to support that.”

The projected growth figures come from a September IDC study, Canadian Hosting Services: Your Place or Mine the results of which Bremner discussed at the event Tuesday. The study, which encompassed surveys of 286 small, medium and large Canadian businesses, reports Web hosting accounts for $216 million of the $316 million overall hosting market in Canada.

Despite this, only 28 per cent of respondents feature customer service on their sites, only 15 per cent of those sites offer online ordering and only nine per cent can accommodate online payment.

“Web hosting of a service is the proving ground for” the hosting model, Bremner said, adding that application hosting (valued at $38 million this year), network infrastructure hosting (valued at $36 million) and storage hosting (valued at $18 million) services will follow the path blazed by Web hosting.

And he said the $216 million being spent this year will increase substantially as companies add more complex features to their sites. “The money (currently) being spent on Web hosting is just he start of the market.”

According to the survey, 80 per cent of Canadian companies, culled equally from small, medium and large businesses, budget less than $100,000 to maintain their Web sites. Web hosting services account for 10 per cent of Web site budgets, which are themselves expected to increase 18 per cent in 2002.

This coming growth will bring a number of new players to the market, regardless of a number of high-profile buyouts and collapses in 2001. June saw both AT&T Canada buy Toronto-based Bird on a Wire for an undisclosed sum and Telus Corp. pick up the Canadian assets and facilities of PSI Net as the American parent company filed for bankruptcy. In September, Exodus Communications Inc., a Santa Clara, Calif. company with a major data centre in Brampton, Ont., also filed for bankruptcy protection.

But Bremner said those failures are marks of a typical business cycle and pointed to a number of small Canadian hosting companies still alive and kicking, including Vancouver’s RoundHeaven Communications Canada Inc. and NetNation Communications Inc., which both offer Web hosting services. He said 97 per cent of the 700 ISPs in Canada provide some form of hosting services while the country hosts more than 30 pure-play hosting vendors.

Still, being big has its advantages. Andrew Stewart, chief technology officer for Richmond Hill, Ont.-based CompanyDNA said one of the reasons the reward and recognition solutions provider chose IBM’s e-business Hosting Services was Big Blue’s size and reputation.

“It was very important to us not to have to go to a number of third parties when we needed service on our firewall,” he said, adding he has confidence in the long-term viability of IBM.

Paul Lovell, IBM Canada’s general manager of hosting services, extolled the business cases for outsourcing, whether to a large or small hosting company. He said by outsourcing companies can dedicate their resources to their own strategic priorities and hasten their time to market. As well, he said outsourcing alleviates the problem of finding and retaining skilled IT staff.

“Even in today’s economic terms, skills are still tough to find,” he said. Skilled people “still tend to be nomadic. As a hosting provider, I take the risk.”

Lovell said he has received a number of queries regarding security since the Sept. 11 terrorist attacks in the United States. McLean said security is a feature companies readily demand of outsourcers.

“If you look at what companies do on their own, trying to be proactive, I think they’re not,” McLean said. “I think that when people look externally, security is top of mind.”

Bremner predicted the Web hosting market will reach consolidation within the next couple of years, with fully-managed services consolidating first due to the substantial investment involved.

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Jim Love, Chief Content Officer, IT World Canada

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