A recent report from Ovum says that the webhosting market will grow by 60 percent between 2001 and 2002 as companies upgrade and outsource their sites. However, Mainspring predicts provider consolidation.

by Michael Pastore of cyberatlas.internet.com [May 9, 2001]

The potential worldwide market for webhosting remains huge, especially when you consider that most companies do not have a website or are not properly equipped to handle e-commerce transactions, as Ovum found.

Webhosting vendors are optimistic that the market is poised to adopt high-end dedicated hosting, even though the vast majority of users are just testing the waters at the low end of the market. That might explain the confusion on the part of end users.

"Users are not getting the message about webhosting benefits and are often confused about what type of vendor to choose, as well as what level of service to sign up for," said Christina Kasica, senior analyst at Ovum. "We talked to over 5,000 companies in three geographical regions and uncovered some surprising facts about this market."

Basic presence
More than half (56 percent) of the companies contacted did not have a website, and only 14 percent of those with a website used webhosting services.

Three-quarters of the companies using webhosting spent less than $25,000 per year on hosting. Ovum credits several factors, such as history and caution, with driving the decision to retain in-house control, as the majority of companies worldwide who have a web presence continue to use internal resources for this purpose.

"These findings indicate the market is less mature than many people think, and highlight an expectation gap that it will be easy for vendors to stumble into without careful planning," Kasica said.

The regional differences in the webhosting market, however, are quite significant. Western Europeans are radpidly adopting webhosting—in fact, Western European rates of website ownership caught up with the United States after a slow start.

The core webhosting clients, such as large enterprises, dot-coms, and ASPs, almost always conserve time and money by hosting their sites externally, Ovum found. Webosting permits companies to get complex sites up and running in a matter of days. Today's increasingly mission-critical sites also require high levels of uptime, performance, security and availability. Webosts can guarantee these in a way that in-house provisioning cannot. Thus, the potential for revenue growth in the webhosting area appears to be phenomenal.

Big growth
Ovum forecasts that the global market for Web hosting will grow from $10.3 billion in 2001 to $46.9 billion in 2006, with the United States and Canada currently and in the future being the biggest spenders. The most rapid growth period will occur between 2001 and 2002 when the global market value will increase by more than 60 percent. Many companies with sites, both users of hosting services and those who internally host their sites, have a very basic web presence that represents opportunities for webhosts.

"We see a number of important market drivers—for example, over 60 percent of the companies we talked to with a Web site are unable to support e-commerce from their Web sites," Kasica said. "To exploit the web economy, companies who have a website will have to allocate key resources to enhance and differentiate their web presence if they don't use webhosting. Those that do not have a web site today, but intend to be part of this economy, must gear up their web presence now or risk being left behind. And webhosting providers will have to scramble to grab these market segments and prevent them from going the 'do-it-yourself' route."

Research by Mainspring also predicts a healthy webhosting market in the long term, but consolidation in the near term.

"There is massive potential. Adoption among enterprises has only just begun," said Russ Knister, director of Mainspring's TCM practice. "Hosting applications versus Web sites is just beginning. Also, the value proposition, which includes cost savings, access to expertise, increased reliability and staying current with technology is still valid. Long-term, the economics can be extremely attractive, especially with loaded data centers and only limited price deterioration."

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