CLECs as ISPs – Hosting and Co-location Services

By Joel Maloff
President, Maloff Group International

February 16, 2000 – In recent articles, we have discussed Internet connectivity services that competitive local exchange carriers (CLECs) can offer.  Now, we turn to hosting and co-location, which offer lots of potential for facilities-based CLECs.

Hosting and Co-location: What’s The difference?
While many organizations use these terms synonymously, they don't mean the same thing.

Co-location is the provision of rack or floor space for Internet services in a “colo room.” Customers typically provide their own servers or specify servers for you to purchase. Customers, not the ISP, often own the software licenses.   In all cases, these servers are connected into the ISP LAN environment for external connectivity.

Depending on the customer, Service Level Agreements (SLAs) may be in place to assure minimally acceptable performance. Other features, such as network security and access control, also may be part of the service.

Many colo facilities allow physical access, although it may be limited to certain times of day or specific days of the week. Remote access to collocated servers normally is achieved through various security provisions. Pricing for colo space is normally based on the amount of facilities needed, the amount of bandwidth anticipated and, potentially, on the amount of additional services required, such as monitoring and maintenance from the ISP. Fees can range from a few hundred dollars per month to many thousands.

Hosting, on the other hand, is the provision of server “cycles” from a shared environment. Customers may share the same server or access to a common set of applications. In addition, a hosted environment normally provides more hands-on management from the provider than co-location.

Many organizations that do not need a large stand-alone serving environment will use a hosting service. Fees for hosting start from $20 per month and can often reach $1,000 per month.  Some of the more prominent organizations offering Hosting and co-location today include Abovenet, Exodus, Frontier Globalcenter, Digex, GTE Internetworking, PSINet, and UUNET.

An emerging area is referred to as applications hosting. As the name implies, this involves hosting specific software applications and those who provide this service are known as Application Service Providers (ASPs).  Those applications can be as simple as electronic mail or as complex as supply chain management, Lotus Notes/Domino, Oracle, or other outsourced functionality. Enterprises of all sizes are beginning to recognize that they cannot find, keep or afford trained personnel to manage these functions so they look to outside organizations for assistance. Companies like Critical Path and USA.net are leading the way as external providers of corporate e-mail systems.

So, You Want To Offer Hosting and Co-location?
The basics for offering hosting and co-location are easy: sufficient floor and rack space, redundant high-bandwidth connections to various Internet backbone providers and peering points, and the investment capital to install shared servers. 

Next, you must determine your target market.  Are you interested in the low-end shared environment? Are you more interested in higher-end businesses? Are you willing to do hosting AND co-location, or only one? Are you interested in becoming an ASP and hosting complete applications for sharing and sale? These are important issues that must be considered carefully before you casually launch into these services. Each one has its own set of requirements.

For example, if you are interested in high-end co-location, the physical layout and security of the room becomes critical. Are there any external windows? If so, you may need to install bulletproof glass so that someone does not take out your servers with a stray shot. You'll need a detailed disaster recovery plan, indicating how power failures and air conditioning lapses are to be addressed. What are your plans for shutting down and restarting  systems and under what circumstances will that occur? Are there water-based fire suppression systems in the colo room? These can be disastrous to servers, routers and the like.

As you can see, the demands of big business for professional outsourcing can be extensive and expensive. You must anticipate these in your business planning process.  In addition, you will need personnel trained to manage your server environment. This leads to the next issue: Which   platforms will you support? Will you support Unix, NT, Linux, or Windows 2000? This decision will impact the people you must employ and the customers to whom you might appeal.

For facilities-based providers, hosting and co-location provide very promising opportunities. We will continue to see advances in technology, such as those recently from Akamai and Sandpiper, which greatly improve the performance of Web sites.  We will also see more and more innovative ways to use caching and streaming media.

Few end-user organizations will have the expertise to do all this themselves, so external partners will be essential. If you can put together the right team of people, technology, planning, and investment, you have the potential to do very well in this growing market.

In our next installment, we will investigate some of the more interesting value-added Internet services that CLECs can offer.

Joel Maloff is founder of Maloff Group International, an Internet business consulting organization. Maloff has been an executive in local exchange and interexchange telecommunications since 1973, and has been involved in various aspects of the Internet since 1987. Maloff is the author of four books and hundreds of articles regarding Internet.