Rising demand for web hosting services

Rising demand for web hosting services By Beverley Head April 20, 2004

When Telstra finally caved in to competitive pressures last month and sliced wholesale broadband prices, it opened the gates for what analysts believe will be a flood of new broadband users.

Telecommunications analyst Paul Budde said the news would generate “vigorous competition” in the market, predicting “a doubling of broadband subscribers over the next 12 months”.

At IDC Australia, telecommunications research program manager Landry Fevre agreed that the move from dial-up to broadband internet access would accelerate. In the second half of 2003, Fevre says the market for residential dial-up internet access shrank for the first time. He adds: “In 2004, it will decline by a further 200,000 to 3.7 million residential users, while cable and DSL broadband users in 2004 will reach 900,000 subscribers (or 19.4 per cent of the marketplace).”

Tellingly, Fevre notes that “the price wars may be done but the war is content”.

For web hosting companies, this promises a bonanza but poses a dilemma; yes, there is more demand for web hosting services as companies outsource management of their richer, faster broadband content but the web hosters have to invest rapidly in highly scalable and robust infrastructure to support clients.

Australia’s present broadband speeds limit content but, says Fevre, once ISPs offer download speeds as high as 6 Mbps (already on offer in Lyons and Paris from France Telecom), it will be possible to access DVD-quality content over the internet. Companies will respond with a range of commercial services and many will turn to third-party hosting companies to manage the content and connection.

Queensland-based WebCentral runs one of the largest web hosting services in Australia. A private company, 49.4 per cent-owned by publicly listed investment company FTR Holdings (which has on its board old OzEmail compatriots Sean Howard and Malcolm Turnbull), WebCentral is already seeing the effect of rising demand for its services, announcing a 38 per cent increase in revenues for the six months to the end of December, 2003, to $17.7 million – and a 50 per cent increase in net profit to $900,000.

The forecast for the sector continues to be strong, with IDC Australia statistics showing the market for web hosting rising 19.7 per cent a year until 2007, and this year, the market is tipped to be worth $184 million, up from $155 million last year.

WebCentral chief executive officer Lloyd Ernst says that as broadband penetration increases, company websites are shifting from “brochureware” to more interactive, content-rich sites. The business proposition underpinning WebCentral is that most of these companies with rich-content websites don’t want to run them themselves, or pay for the communications infrastructure needed to support them, so they outsource. “If you don’t use a web host then you have to host yourself and therefore you need fairly big pipes and that’s expensive,” Ernst says.

“As more customers connect to broadband, it becomes harder to host in-house, especially if you want to host rich content such as video or audio. It costs $5000 to $10,000 a month for a single 1 Gb link. For redundancy, you need at least one more link but to maximise the performance to the user you may want to multi-home with server Tier 1 ISPs.

“Then there is the cost of the routers for each link, which are $25,000 each, plus the technical expertise. So very quickly it becomes more cost-effective to use the infrastructure that WebCentral already has in place, manages and expands,” he says.

For some large multinationals, it might still make sense to host their own website in their home market but less likely in international markets. Broadband delays for a consumer accessing a Brisbane-based website from Perth are about 40 milliseconds, which Ernst says is acceptable. But to download from a US website, the Brisbane user would experience delays of about 300 milliseconds, which would start to dent the experience, so he believes multinationals will also turn to web hosters to provide better local broadband access to content.

Over the past year, WebCentral bandwidth usage has been rising 25 per cent a quarter but according to Ernst the pricing just put in place might see that rate of increase blossom to 35-50 per cent.

“We are at a pivotal point in the evolution of the Australian internet right now,” Ernst says, expecting not only richer, faster content but new breeds of applications which companies and their clients can access via web hosters. One of the early examples, says Ernst, is WebCentral’s hosted Exchange server. At present, 400 small businesses use it to host 2500 mailboxes managed by WebCentral, which tackles issues such as viruses and spam, freeing the small business to concentrate on its core activities.

In anticipation of both increased organic demand and new applications, the company has been aggressively investing in infrastructure. Last year, it bought a Hitachi 9980v Lightning storage area network which can be rapidly scaled to accommodate 150 terabytes of data. Meanwhile, it has been rolling out fibre optics internally to link its two datacentres to key customers and to the Hitachi Datacenter to provide disaster recovery if required. Once the dark fibre is in place, it can quickly be commissioned.

As far as the “big pipes” are concerned, WebCentral has a 7.2 Gbps link to all tier 1 ISPs and claims to be using just 3-5 per cent of that capacity, giving it sufficient bandwidth, even if broadband speeds offered by the ISPs are doubled.

BROADBAND SERVICE CAPABILITIES DOWNLOAD SPEED: Content access with satisfactory level of service.

64-128 kbps: emailing, instant messaging, web browsing, searching, light gaming.

256 kbps: downloading Mp3s and online gaming (single-player or multiplayer), IP telephony.

512 kbps: very fast web browsing, audio streaming, fast Mp3 downloading, video streaming (sub-very high speed, VHS-quality), multiplayer console games (Xbox Live! etc).

1-2.5 Mbps: peer-to-peer (P2P) large file transferring, VHS-quality video streaming, downloading large video movies.

3-4 Mbps: near DVD quality video streaming.

8 Mbps and up: high-quality DVD video streaming, multichannel TV capability.

This story was found at: http://theage.com.au/articles/2004/04/19/1082326135183.html

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