Managed hosting vendors winning converts

Storage hardware vendor Seagate had handled its applications and Web sites in-house for years. However, about a year ago, the company needed to get a project up and running quickly at a time when its IT resources were strapped, so outside alternatives were examined.

Seagate settled on managed hosting provider Conxion, which got the company's equipment, a blend of Unix and NT boxes, up in about three weeks.

"It was timing, it really was,"says Craig Harmer, manager of e-business strategy, of Seagate's decision to go with a managed hosting provider. Seagate needed a quick, cost-efficient way to get its applications running. "An externally hosted environment provided that for us," he says.

Harmer admits there were concerns about turning a level of control over to Conxion, which manages Seagate's environment up through its operating system. (Seagate manages its applications.) Harmer says the quality of service that Conxion has provided - principally in terms of reliability and security - has eased those worries. "We consider them an extension of our internal infrastructure," he says.

While many companies remain skeptical about turning servers over to a hosting provider, others such as Seagate are finding that the move can save money and time while letting them focus on more strategic business initiatives. Clothing retailer Benetton, for example, uses managed hosting provider Digex to handle the dozen servers that run its e-commerce Web site.

"We need to have a really dynamic and scalable solution for [our 'Net projects]," says Paolo Cancelliere, director of Web services for Benetton. "Doing this internally wouldn't be possible because you have to buy servers [and] connectivity." By using Digex and other hosting providers to manage its 17 Web sites, Benetton doesn't worry about monitoring and maintaining its servers, Cancelliere says. Instead his 150-person staff can "concentrate on new products and new technology."

Cancelliere estimates he's cut his IT costs 30% by using Digex, which provides managed services such as managed firewalls, managed storage and system monitoring.

Managed hosting is a step above collocation, where a customer gets nothing more than rack space, raised floors and connectivity. In managed hosting, the provider offers services such as reporting and monitoring, managed load balancing, managed security, managed storage and managed databases. Some vendors offer the services piecemeal, but many provide preconfigured standard platforms that let customers get their Web initiatives up quickly. A key part of managed hosting services is that they include a service-level agreement, specifying the service parameters the hosting provider must meet.

While companies aren't swarming to buy managed hosting services, analysts and hosting providers say they see a distinct trend in that direction. Market research firm IDC, for example, expects the hosting market to more than triple from $4.8 billion this year, to $16.1 billion in 2005. Managed services will account for as much as 80% of the market in 2005, IDC says.

Hosting providers that launched with fully managed offerings, such as Digex, Conxion, RackSpace, Genuity, Intel Online Services, Loudcloud, Data Return and IBM Global Services, say they're seeing an uptick in demand as brick-and-mortar companies seek to make better use of the Web. Others, such as Exodus and Qwest, whose roots are in collocation, are also reporting an increasing demand for additional support besides floor space and network connectivity.

"More than half of our customers are buying managed services today," says Kurt Cohen, vice president of hosting services at Qwest. "In the past, two out of three customers were smaller, dot-coms. They were more likely to buy collocation. Now, with more enterprise customers, we're seeing more interest in managed services."

The most popular managed services tend to be security, such as firewalls, monitoring and reporting services, and data backup, the vendors say. It's a slow move to have hosters manage applications, although some are seeing demand for that, too.

Companies that use managed hosting services say the key benefit they get is the ability to refocus resources on strategic initiatives and leave Web hosting to those who know it best.

"Bringing up servers and having storage and building a network is what they do full time for a living," says Seagate's Harmer. "Seagate builds world-class disk drives for a living. The network and infrastructure is part of what we have to do to survive. But it's not our core competency. Our core competency is building world-class hard drives. So you let them do what they do best, and we do what we do best."

That's where SportsLine.com CTO Dan Leichtenschlag takes issue with managed hosting.

"Every time I talk to a managed hosting provider they say, 'You should let us do it because it's not your core business.' That's their pitch," he says. "Well, that may be true for some companies, but for me it is my core business."

SportsLine.com's properties include SportsLine.com and the official Web sites of the NFL and the PGA Tour, while serving as the primary, sports content provider for AOL and Netscape. The company recorded more than 1.5 billion page views last month. It runs its sites on 400 servers collocated at Exodus. And Leichtenschlag is happy to have his 20-person IT team monitor those servers and making sure they stay up and running.

Managed hosting "is great for somebody who's starting up, who doesn't have an infrastructure, who can make implementation choices before they implement, and fit into an environment that can be more easily managed," he says. "But when you have an environment like ours that's fairly heterogeneous in terms of servers, in terms of network equipment, in terms of all the different applications we build, you need expertise to run that. And if you want a state-of-the-art site constantly developing new stuff, it just doesn't make sense. There's no way managed hosting providers can provide the service you need shoehorned into the environment they might want to supply for you."

Talk to the hosting vendors, however, and you'll hear a different story. They say they're responding to customer demands and offering a wider variety of platforms and services to meet even complex needs.

What seems to be the case, though, is that many companies will move into managed hosting services little by little. Leichtenschlag, for example, talks about perhaps using a managed firewall in the future.

"That's a common denominator type of service that a company can leverage and manage a couple hundred customers and definitely save you money because they have more expertise," he says. "Everybody has [a firewall] and it's pretty much the same, unlike the rest of our environment where we have tons of unique applications that nobody else has. That just doesn't scale for a managed hosting provider."

Contact Senior Writer Jennifer Mears

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