Two years ago, analysts proclaimed Web site outsourcing a petty pursuit. These research firms, along with numerous trade publications, predicted that corporate customers would stop outsourcing their Web sites to Internet service providers once information services departments created stronger infrastructures and developed in-house Internet staffs. But like weather forecasts, analyst forecasts can be wrong. Instead of being cast off like last year's almanac, ISPs have proved to be reliable and strategic Web partners during the past several months. Customers are not only continuing to outsource their sites, they are using ISPs to increase their sites' depth and improve their functionality. A report from International Data Corp. forecasts that by 2002, the Web hosting market will reach nearly $12 billion.

Because Web site hosting is lucrative for service providers, choosing the hosting route is easy (Figure 1). They have the equipment, space, personnel and customer base. For some providers, hosting is a side business. Others, such as Verio, have made hosting their core business service. Hosting services, whether a side venture or core offering, come in three flavors: shared, dedicated and co-located. The dedicated hosting segment is expected to have the largest amount of growth and revenue. Shared hosting is expected to have the second-largest share of growth and revenue. Figure 2 shows a breakdown of estimated revenue among these segments.

"Who an ISP targets for Web hosting campaigns depends on the ISP's current customer base," says Greg Howard, an analyst at Infonetics Research. "If the majority of its customers are small businesses, it should design its services around its existing customer base. These additional services will help ISPs reduce the churn rate among their business customers."

Shared and shared alike Most Web sites are shared. Typically, consumers use shared hosting for their individual home pages, and small businesses use it for promotional-focused Web sites. ISPs place hundreds of these sites on one server and let the customers share its functions and applications. Shared sites usually run on a Unix server running standard applications. It's a robust, high-volume, low-cost business, which is why so many ISPs offer it.

Last September, Advanced Radio Telecom began offering Web hosting in Seattle. ART is building a 38-GHz broadband wireless network and targeting all commercial buildings in its path as potential customers for direct Internet access. "If your hosting strategy is only to provide space, it's not a hard area to get into," says Bill Maxwell, president and chief operating officer at ART. "We look at it as providing full service to our customers and giving them a lead into e-commerce."

The company's main targets for hosting service are small and medium-sized businesses that began as access customers. "Our customers are bandwidth- and technology-starved because there is so much more focus put on the larger businesses," says Todd Hirsch, executive director of product marketing at ART. "We expect to be intimately involved with our customers because they don't have technical support."

ART is designing templates using Microsoft's FrontPage, which will make it easier for customers to design Web sites. The templates are simple, flexible and scalable, and they allow the customers to update the Web sites themselves.

Shared hosting is the only form of Web hosting currently available from ART. It offers customers a 99.9% availability service level agreement. If ART is not hosting a customer's site, it will offer companies the chance to increase their bandwidth, and it promises to increase it within one hour. Hirsch predicts that ART will offer co-location and dedicated services within six months, which is when the company expects customers to request more complex services.

The dedicated type Companies that anticipate high Web site traffic and view their Internet presence as critical require dedicated hosting. These customers cannot tolerate the bottlenecks and latency often associated with shared servers.

Dedicated hosting servers can run on NT or Unix platforms. Several ISPs have set up shared application servers for their dedicated customers. These application servers include RealNetwork's RealMedia server, Lotus Instant TeamRoom, Acuity's ichat or Netscape's Collabra messaging servers, Microsoft's Merchant server and Netscape's Commerce server. Figure 3 shows how PSINet used a variety of application servers to host NASA's shuttle site.

Customers pay extra to access the applications on these servers. A minority of ISPs offer dedicated service because it requires substantial customization and sophisticated network infrastructure. Customers seeking dedicated service frequently use e-commerce applications, which may require integration with their back-end systems.

A prime example of a dedicated service provider is Sunnyvale, Calif.-based Frontier GlobalCenter. Although most of its customers are in the shared environment, the largest percentage of Frontier's hosting revenue comes from its higher-end, dedicated customers. Last year, the company claims to have earned $100 million in revenue through Web site hosting.

"Our business goals are to attack businesses that rely on the Internet," says Jason Schaffer, product manager for IP applications and hosting at Frontier. "Only a small percentage of our customers are Internet-centric, but it's the majority of our revenue."

During the first quarter of 1999, Frontier is scheduled to roll out its dense wavelength division multiplexing network, which will allow hosting customers to scale up to any bandwidth they want. Frontier can offer customers another service because of its multiple data centers in New York, Washington, Sunnyvale, London and Melbourne, Australia. Multiple data centers allow Frontier and other like providers to put customers' Web servers in separate geographic regions. With servers on the East and West coasts, Frontier can route a surfer to the closest Web server, thus moving content closer to the user.

Sprint began offering shared and dedicated Web hosting services last April. "Since we were late coming to market, we wanted to differentiate our service by providing rock-solid reliability and performance," says Mike Fitz, group manager of IP services product management at Sprint.

About half of Sprint's customers are using a shared environment and the other half have chosen dedicated services. All customers have a 100% availability guarantee. Sprint's Level 1 customers receive 25% off their monthly fees if the service goes down, and Level 2 and Level 3 customers receive a 50% refund off their monthly fees.

The co-location route Under co-location, ISPs rent space to their customers and provide direct access to their networks, which gives customers a fast and robust connection between their Web sites and the Internet. Although Exodus Communications is one of the most well-known companies to offer co-location services, there are a few others in this niche, including MCI WorldCom.

In December, MCI WorldCom announced Enterprise Class Hosting and Hosting Professional Services, aimed at its dedicated and co-location customers.

In the past, MCI WorldCom offered custom application services, dedicated integration and support to individual customers. The new Enterprise Class Hosting bundles these and other services for a standard price. It also provides customers with a dedicated network staff. Hosting Professional Services, allows customers to purchase technical expertise time at an hourly rate on a monthly basis, which provides customers with more tailored solutions for the individual needs of their Web sites. MCI WorldCom's ongoing development in hosting services will be in the enterprise space, but it has no plans to move out of the shared environment. "We've had customers who signed on with us at $300 and are now $50,000 customers," says Mitch Ferro, director of product management for Internet hosting and

e-commerce at MCI WorldCom. "These types of customers are making investments, and there are still others out there that will need a starter kit," he says. "The shared environment is a great feeder system."

Partnership programs Internet access, server uptime and dedicated management are only part of what makes a successful hosting service. Customers want more than space on a server; they want to know how to improve their sites' design, increase their features and functionality, and add e-commerce. ISPs, especially smaller ones, must have strategic partners to help customers with Web site design, application development and system integration.

Verio, one of the largest hosting providers, has designed three partnership programs: the authorized solutions program, the referral partner program and the private label partner program.

In all, Verio has about 4000 companies in its partnership programs. Last year, between 35% and 45% of Verio's hosting sales came through the partnership program. Next year, the company expects those sales to double.

About 500 value-added resellers, systems integrators and computer resellers are in the authorized solutions program. These companies are located around the country and, like Verio, are targeting the small and medium-sized business markets.

The referral partner program has more members than the authorized solutions program, and most are Web design firms around the country. As Verio has expanded, it has kept all its regional branch offices and worked hard to create partnerships throughout the country.

"Local support is very important. Our branch offices and regional partners let customers see a face," says Amy Meyer, director of indirect distribution channels at Verio.

The private label program has the largest number of members. The program is more flexible than the other two, and it's designed for companies that want to sell under their own labels and provide billing and customer support.

"We're investing in our partners because we want the relationships to be beneficial for everyone involved," says Meyer. "We give them sales and marketing support, development funds, training and a monthly commission."

AT&T has taken a different approach to its partner program. It has about 300 Creative Alliance Partners that are design firms, system integration companies and application developers. At one time, AT&T had a much larger alliance program, but a small percentage of the member companies were doing the majority of the work. AT&T relaunched a smaller, more demanding program.

"We partner closely with our members; not just anyone can get into the program," says Ron Koskinen, marketing director for Web site services at AT&T. "Our local branch office must nominate the company. Then, we evaluate their work, and they must attend training. We're don't want to just give away the AT&T logo."

Meeting e-commerce demands Hosting customers are particularly interested in e-commerce options. Only about 20% of the sites currently on the Web have e-commerce functionality, but that number will rise rapidly with the amount of attention e-commerce is receiving.

"A year ago our customers were just getting started on the Internet. They have moved from the access stage to housing important customer data with us, and now they are offering transactions," says Neil Isford, vice president of e-business services at IBM. "Our leading-edge customers are dabbling in e-commerce. Instead of just a hobby, e-commerce has become a corporate-level strategy discussion."

IBM, with its extensive global presence, is able to provide many e-commerce applications in-house.

However, most service providers are partnering with a variety of e-commerce companies. InterShop and Open Market are two of the top applications used by ISPs. Other popular application companies include Broad Vision, iCat, Mercantec and ecBuilder. These companies can provide catalog builders, transaction servers and storefront templates. These applications are especially appropriate for shared and dedicated environments in which these resources can be accessed by a number of customers.

Most of PSINet's hosting customers use a shared environment. "We've chosen Intershop because it provides a complete storefront, catalog manager and a purchasing manager," says Leo Imperial, product manager for e-commerce at PSINet. "It's a complete, database-driven application that allows customers to run their storefront the same as they do their physical storefront."

Early e-commerce adopters are seeking ways to integrate back-end databases with their Web servers. These customers will require more systems integration and application development help.

Moving beyond a storefront can be a complex, labor-intensive project (see sidebar on page 24). Service providers should expect to invest much time and money during the first three months of developing an enterprise hosting environment; however, the expenditure will be regained once the site has gone into production.

Don't forget about durability Despite what industry pundits predicted two years ago, Web hosting clearly will be a booming business during the next decade, and the competition for revenue will intensify as carriers enter the market.

More ISPs are adding hosting to their offerings, and a number of wireless carriers are joining the fray.

Data centers are popping up around the country to house these new and growing Web sites. Also, partnerships between software developers and carriers are on the increase.

For example, in mid-December Qwest Communications and Microsoft announced that they are working on complex e-commerce hosting services that are scheduled for availability in the second quarter of 1999.

In addition to partnerships that complement a carrier's core services, providers must strengthen their networks' capabilities. Customers' expectations will continue to increase, and their demands will become more complex as they add multimedia, discussion areas, collaborative work areas and e-commerce. To survive in this market, carriers must provide reliable service, bandwidth scalability and the most current applications.