Hostopia

This white label webhost has a key advantage over much of the competition—it doesn't compete with its ISP customers.

by Alex Goldman ISP-Planet Managing Editor [September 26, 2005]

Missisauga, Ontario, Canada-based wholesale webshost Hostopia (with U.S. offices and data center in Fort Lauderdale, Fla.) is the kind of company that ISPs should work with. The management used to run an ISP, and the company sells wholesale-only. The company doesn't compete with you while taking your money (unlike so many other companies that are eager to obtain ISP customers).

We're talking to Paul Engels, vice president of marketing and sales, who worked at the ISP, iDirect, that was founded by Bill Campbell, who also co-founded Hostopia. He initially thinks we're calling from sales, but we correct the misunderstanding and start the interview. "Internet Direct was Canada's fourth largest ISP," says Engels. "Campbell started it up as a BBS with less than 300 subscribers in 1993, and by the time he sold the company it has 150,000 dialup subscribers, over 1,000 broadband wireless subscribers, and 14,000 small business web sites."

Bill Campbell, Colin Campbell (no relation), John Nemanic, and his brother Franc Nemanic, co-founded Hostopia in July of 1999. At that point, Engels was vice president of marketing at another ISP, Look, and Look became Hostopia's first and largest customer.

Hostopia provides white label webhosting to companies like ISPs and even dedicated webhosts. Engels says the company's success is the result of a single epiphany: "Hostopia realized that business webhosting has three components: the domain name, hosting and related services, and domain-based e-mail. It's amazing how many ISPs offer these services piecemeal. When a vendor starts to decouple services that belong together, they only confuse the average SMB customer. We felt that what businesses needed were the address, the e-mail on the address, and that the address be their domain. Businesses want their e-mail and web site to be on their own name, not the name of the ISP."

Engels says that the average SMB customer has changed a great deal over the last 10 years, which is how long the hosting business has existed. "In the early days of the business, in 1994 or 1995, someone who bought a web site knew more about the technology than their webhost. Today's majority adopters, 66 to 70 percent of the public, are not terribly sophisticated. The typical purchaser has no clue about choosing between Linux, Apache, or Microsoft hosting. Trying to sell hosting on the basis of the underlying technology introduces fear, uncertainty, and doubt into the buyer's mind."

It so happens, Engels is quick to mention, that Hostopia has developed an OS-agnostic hosting platform that the company calls its "hybrid UNIX Windows system".

"If you want to run a Microsoft app, no problem. If, on the other hand, you want to run PHP or Perl, that's no problem too. In fact, you can do both on the same website."

Engels explains that the sales and marketing department may be using one language while the designer may want to build the front end in another language. "The user wants to choose what works, not to be penalized for making the wrong choice. It makes hosting a simpler value proposition."

Engels admits that although, he believes, Hostopia was the pioneer of hybrid hosting, launched in 2000, he knows of one other webhost that has launched a similar product, Interland, with its Blue Halo in 2003. Perhaps Engels is eager to mention Blue Halo because both customers and trademark owners have had issues with the service.

Hostopia also offers outsourced support to ISPs, but Engels notes that 66 percent of Hostopia's customers prefer to handle support themselves. "We're already giving high quality support on other services, so having people trained to handle hosting questions is no problem."

The company is equipped to work with any registrar and billing system an ISP may have, and can offer its own hosted billing system should an ISP request it. The company has Strategic Alliances with several technology providers and with the various trade associations of RBOCs, CLECs, and ISPs: FISPA, CISPA, TISPA, TIA, Comptel/Ascent, and the USTA.

Engels says Hostopia's proud of the data centers it uses. The company uses a large Telus data center in Canada, and in the U.S., it uses the famed NAP of the Americas in Miami.

"Clients expect to know we'll be around for them," he adds, mentioning Hostopia's finances. "Since we opened our doors in July, 1999, we've grown at an absolutely outstanding clip, 60 to 70 percent compound annual revenue growth. We're cash flow positive and profitable. We're privately held, with most of the equity held by the four co-founders. We raised a little over $2 million for, I believe, about 10 percent of the company from Telus Ventures."

The company, he says, has 200,000 web sites (full web sites, not just forwarding placeholders), 1.8 million business class mailboxes, and over 500,000 domains. The company's large clients include superpages.com (Verizon), Covad, and Bell Canada. "Interestingly, our model has appealed to both small local ISPs, such as NetWizards, with as few as 100 web sites and to national telcos with hundreds of thousands. Everybody benefits from our high margin model that allows us to pass on 60 to 70 percent gross margin levels to our customers while operating profitably."

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