The Most Aggressive Webhost

It's offered free accounts to thousands, run bigger ads than anyone else, and grown very rapidly. Other webhosts are wondering where 1&1 came from and whether the cash will run out. We asked, and learned the answer.

by Alex Goldman ISP-Planet Managing Editor [February 17, 2005]

Towards the end of January, 2005, 1&1 Internet Inc. announced that it had gained 6,000 small business customers through a typical offer: a completely free promotional package with no obligation.

The company's U.S. market entry included an equally aggressive ad campaign featuring very large ads in trade magazines. The campaign was designed and implemented by in house marketing experts.

In 2003, the company grew in the residential customer hosting market with a similar free offer.

So we had a few questions. Where did this company come from? Why is the company so aggressive? Where did the cash come from?

Follow the ILEC
The cash comes in part from the company's parent, United Internet, a massive company with three separate hosting brands targeted, respectively, at consumers (GMX), power users and SOHO customers (1&1), and small business (Schlund+Partner). United had 3.3 million contracts (as of September, 2004) in Germany, the UK, the U.S., France, and Austria.

United Internet's early growth appears to have benefited from a consulting relationship with T-Online, the Internet arm of Germany's ILEC, Deutsche Telekom. 1&1's Chairman, Andreas Gauger, says, "United Internet is an independent company, and is not owned by Deutsche Telekom. However, for many years, United Internet and Deutsche Telekom have had a close professional relationship."

1&1 also benefited from an IPO at the right time. "After having received $21 million in our IPO in 1998, in 1999 we had a capital increase of more than $68 million," says Gauger. He adds that the company invested about $18 million in its U.S. operations in 2004.

United Internet's goal is to be among the top six in the webhosting business by the end of 2006.

Our e-mail interview with Gauger follows:

1. When you founded 1&1 were your ambitions local or global? How has marketing strategy changed over the years as the company grew?

A: 1&1 started in 1992 on a small, local scale, which allowed us to be very much in tune to what it's like to be a small business. At the same time, our long range goal always was to grow steadily, both in terms of company size and geographic range. We achieved this by first building a solid foundation in Germany, and then by bringing our products and services to other parts of Europe and, most recently, the US.

Overall, we have found at every step a very enthusiastic response to our sophisticated products and rather unique business model, which is to serve as a one-stop Internet shop where users can get everything they need to build a successful and productive website. Like our products, our marketing activities are continuously audited for maximized efficiency. We have essentially stuck to this marketing strategy and the same basic concept throughout the years, since it obviously has worked well for us, but stayed in touch with the market to modify and adapt our approach according to trends and new needs.

2. Has 1&1 made any key acquisitions?

A: Like many successful companies, 1&1 has been involved in several business ventures that have allowed us to achieve the long range growth goals we established many years ago.

• In 1998 we acquired a majority share in the German webhosting and domain registration company Schlund + Partner, whose founders came mostly from the computing faculty at the University of Karlsruhe in Germany.
• In 2000, we merged with Schlund + Partner completely. This was without question our most important acquisition as it provided 1&1 with the most advanced webhosting automation technology and a tremendous team of developers and technology experts. Our German market share grew to about 40 percent in the following years.
• In the meantime, we made smaller acquisitions, most notably 40 percent of Imedia, a provider of automated products for website optimization; Sedo, one of the leading domain market places; and two software development companies.
• In 2001, 1&1 acquired free e-mail provider GMX, which today maintains some 20 million users, making it the leader in Germany.
• Additionally, just last month, our parent company, United Internet, bought InternetX, a German company that offers white-label webhosting for smaller providers and maintains about 700,000 registered domains.

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