Do-it-yourselfers rethink Web hosting
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Performance Products, a distributor of auto parts and accessories, has been in business for more than three decades. It's had a Web presence since 1994, running a mostly informational site from servers it manages at its Van Nuys, Calif., headquarters.
However, these days the company is looking for a managed Web hosting services provider to take the load off its IT department. It's a move that analysts - and Web hosting firms - expect to see more of as companies realize the task of running a complex e-business Web site can be more trouble than it's worth.
A recent study by Jupiter Media Metrix found that companies could save from $6 million to $12 million in three years by outsourcing Web hosting responsibilities, though a little less than half outsource. The report says companies that keep Web servers in-house are overestimating the competitive advantage of in-house Web hosting.
While Web hosting companies are struggling in the current economy, market research firm IDC predicts Web hosting revenues will more than triple from $4.8 billion this year to more than $16 billion in 2005. The growth will be driven in large part by demand for managed services, analysts say.
The challenge for network executives is to determine whether outsourcing your Web hosting fits with your company's broader business and network strategies. Some executives are reluctant to outsource because of concerns about security; the financial viability of outsourcing vendors; and the competitive advantage that may be associated with keeping servers in-house. But there are other issues, such as performance and priorities, that have companies such as Performance Products heading toward outsourcing.
In March, Performance Products relaunched its Web site to give customers greater access to products online. Neil Levitt, director of Internet operations, figured the transition would be smooth and that his team could continue to handle it internally. But it didn't turn out that way.
While the company designed the network and server infrastructure to handle a doubling in Web site traffic, "we surpassed that in the first 90 days," he says. Traffic has tripled at the redesigned site, which is more complex than the previous site. The new site features personalized catalogues, for example, that are created dynamically, with customers inputting auto make and model.
"We were just naïve in what we were doing," Levitt says. "It just ended up hitting us really hard."
Levitt and his staff tried to correct problems but found all aspects of the hardware were simply overloaded. He ended up bringing in a Microsoft technical engineer to analyze the systems.
"Then we had to go out and make a fairly significant investment in additional hardware," he says. "Now we're at the point where we can start looking at performance aspects of different parts of the hardware and software."
Levitt is also talking with several hosters, including Digex, which provided an in-depth return-on-investment analysis to help Levitt quantify the pros and cons of going with a hosting provider.
After meeting with Levitt and getting information about his current infrastructure and needs, Digex gave him a report that included a financial analysis showing what things would cost in-house vs. with a managed hosting facility.
Levitt wouldn't be specific about what the savings were, but he says Digex claims companies can save between 30% and 70% of their hosting costs by outsourcing.
"Right now I have a guy dedicated to making sure our site is up and running and it's stable and it's performing well. That's not what I originally hired that person for," Levitt says. "He's trapped in that until I can either hire somebody else or find a company to take this burden off of us."
Daniel Guermeur, CEO of Metadot, a portal software vendor and subsidiary of oil and gas technology firm Schlumberger, says he was hosting some servers in-house, but decided to turn over all of his hosting responsibilities to Rackspace, a San Antonio, Texas, hosting firm. Rackspace now handles "the back end, the difficult work of managing the network and the server" so that Metadot can "focus on our core competency," he says.
By moving his servers into Rackspace facilities, Guermeur saved between $150,000 and $200,000 initially and expects to save between $50,000 and $80,000 in hosting costs each year.
Although, other companies aren't as quick to jump on the Web hosting bandwagon. For example, McAfee.com hosts more than 250 servers in-house and has no plans to move any of them into a hosted data center.
McAfee CIO Doug Cavit doesn't discount the savings some companies can achieve by outsourcing Web hosting responsibilities, but says he gets a strategic advantage by keeping things in-house.
"I can go to market very quickly with advanced technologies that would be difficult to implement using managed services," he says.
"If I'm a company where this is not necessarily my core competency, if I'm running something very generic, then, yeah, it probably does ... make a lot of sense for someone else to worry about it," he adds.
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