Peer 1 buys Interland assets to expand hosting options

Network provider Peer 1 Tuesday said it has made an acquisition which will provide three new data centres south of the border and allow it to expand its dedicated server business.

Peer 1, based in Vancouver, paid US$14 million for the dedicated server assets of Atlanta-based Interland Inc., including its data centre properties in Altanta, Miami and Freemont, Calif. Peer 1 already has data centres in Vancouver and Toronto.

Peer 1 has traditionally followed a co-location business model, said CEO Geoffrey Hampson: customers own and operate their own servers, but house them in Peer 1’s data centres. But, said Hampson, Peer 1 was missing out on revenue opportunities, since some customers were bringing in rented servers from third-party providers.

“We weren’t getting any part of that business,” he said. By offering a dedicated server business, “we provide not only the bandwidth and the facility, we also provide the server.”

Peer 1 has already made overtures into the dedicated server and last year purchased ServerBeach Ltd., including its data centre San Antonio, Tex., and approximately 4,200 dedicated servers.

“We looked at setting up our own dedicated server business, but it was easier to go out and buy and existing one,” said Hampson. The ServerBeach deal also provided Peer 1 the company’s software tools, including a means to automate server systems like apportioning more bandwidth and adding IP addresses where necessary.

That ServerBeach platform will also manage the 7,500 servers acquired through Interland deal. “The more we got to know the business, the more we liked it,” said Hampson. “We looked at the Interland business . . . and saw an opportunity to consolidate that into our existing product mix.”

Customers that were leaving Peer 1 once their contracts had terminated were doing so because Peer 1 had a limited range of hosting options, said Hampson.

“(The Interland acquisition) gives us the ability to offer our existing customer base a wide variety of choices on how they build their business or how they outsource their Internet infrastructure.”

Interland CEO Jeff Stibel said he sold the dedicated portion of his business for very different reasons: to focus on one particular customer segment. The bulk of Interland’s customer base is small and medium-sized businesses.

“We came to the conclusion that the (dedicated server) technology . . . is not that compelling to small business owners,” said Stibel. “Instead, they were looking for quality of service, reliable service and increased customer care. We feel that we can do that in a more dedicated way with a shared, as opposed to dedicated, platform.”

Interland will continue to work with Peer 1 for a time. The company will house its hosting platform – designed to meet the Web and e-business needs of its SMB customer base – in Peer 1’s facilities.

Peer 1 has inherited about 6,000 new customers through the Interland acquisition, said Hampson, effectively doubling its revenue opportunities. Most of those customers are based in the U.S. There may be the possibility of expanding Peer 1’s Canadian customer base using American facilities, he said, but that would depend on their specific needs.

“It doesn’t matter about fractions of a second lag time from coast to coast except in rare instances: a good example of that would be Internet video gaming,” explained Hampson. “If you’re playing a game and you’re in California and the server is in New York, that 50 or 55 milliseconds of latency between the two locations could be the difference between shooting somebody or being shot.”

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