When people think of Web hosting, they envisage a fairly simple outsourcing operation -- servers for a customer located in a service provider's data center that support the customer's Web site via a broadband network. When you add hosted applications, you enter the province of application service providers (ASPs). Web hosters have traditionally avoided value-added services that full-service ASPs offer. Such tasks required a customized approach where profit results from high sales margins on a few specialized services. Web hosting took a mass approach where profit resulted from low margins on volume sales.
That's changing. Web hosters are adopting many of the outsourcing service strategies of ASPs. Why? First, customers are demanding them - many have been spoiled by the more diversified service portfolios of full-service ASPs that offer things like accelerated deployment. Second, as with most generic offerings, price becomes the major differential. And competing on price - especially in a mature market with many comparable players - is risky because it flattens already thin margins.
Hosted service providers exist along a continuum with progressively more complicated technology and business strategies requiring increasingly custom solutions for higher margins. Small and medium-size Web hosters exist at the simple/inflexible/low margin end of the spectrum; while large Web hosters are closer to the other extreme, offering integration, automated provisioning, billing and customer and tech support. Pure-play ASPs with few value-added services are about a notch above large Web hosters on that continuum - but they differ because they offer applications. Lydia Leong, principal analyst, Gartner Dataquest, says Web hosters now are even branching into more value-added services like performance monitoring and content distribution.
Customers Can Configure Their Own Servers
RackSpace, based in San Antonio, Texas, is a mid-range Web hoster. Its average customer spends $1000 per month in hosting fees and has anywhere from a few to a few hundred employees. But RackSpace also serves customers with complex hosting needs that spend as much as $50,000 per month.
RackSpace has multi-platform expertise - it offers Sun, Linux, UNIX and Windows NT and 2000 servers. Customers can custom configure their own servers at the company's Web site by choosing the type of operating system, processor, amount of memory and capacity of hard drive. But RackSpace also offers several standard server packages that provide a set number of servers in fixed configurations.
RackSpace also offers its own brand of live, 24/7/365, "Fanatical Customer Support," as well as a self-service customer portal (my.RackSpace.com) that enables clients to do things like make online payments and request upgrades.
RackSpace guarantees deployment in 24 hours and upgrades in four to eight hours, but can do both faster for higher fees. The my.RackSpace.com portal offers special services like a security section where customers can find out what security software patches are needed to plug exploitable weaknesses in certain systems, where to get them and, in some cases, how to download them right from the portal.
Customer Has Short Time Frame, Limited Budget
Pick-a-Prof of Austin, Texas, is a fairly representative RackSpace customer. It's a Web site operation that lets students from numerous universities evaluate professors and classes before signing up for courses. It not only provides data like grade histories of professors (% of As, Bs, etc.) and student evaluations of them (ranked on a scale of "poor" to "excellent"), but it also describes the types of exams, class workloads and professors' teaching styles. Once students have compared and selected classes to find those in which they're likely to succeed, they can put together a course schedule and buy all their books online at the site too.
According to John Cunningham, founder of Pick-a-Prof, the dotcom's original business challenge was a bit daunting. The company "had to build an enterprise level environment in a very short time period on a limited budget." In addition, the company was moving from a Windows-based, single-server environment to a Linux-based environment with multiple web and database servers and Cisco firewall and load balancers.
"Outsourcing was a no-brainer," Cunningham says. "With the expertise needed to launch this service and make this kind of move, we needed a lot of help in setup, and help-on-demand for upgrades and in case of problems."
The Underdog Wins the Contract
After interviewing several Web hosting companies, RackSpace proved to be "the underdog when we started the RFP process," according to Cunningham. This was due primarily to one fact: "they were not in Austin," he says. Cunningham had had bad experiences with out-of-town hosts. He only talked with RackSpace because of a strong recommendation from some colleagues."
However, even after meeting with a RackSpace salesman, talking about potential structure designs and getting a price quote, Cunningham says "I still turned them down." Finally, after the fifth round of contract negotiations with the host he originally chose, Cunningham says he called RackSpace back to give them one more chance. He's glad he did. "The price they gave me saved me $250,000 over a two-year period," he explains - "and the contract didn't need 20 hours of my lawyer's time to negotiate."
RackSpace wasted no time in making its client happy. Cunningham says they got the site running "within two days of signing the contract and they even had a custom version of our database software."
Scalability Is a Plus
Though the site sells textbooks and runs ads, Cunningham says "most of what we do is provide a data engine of grading histories and evaluations of professors to students; every page is a database search." Of course, site activity changes at different times of the school year, so RackSpace lets Pick-a-Prof take servers on and offline depending on usage levels.
That flexibility extends to customer service and technical support, too. Cunningham thinks Rackspace's portal-based "service ticket system is very good, and it's nice to have a record of everything." He's especially impressed with the expertise and personal touch of RackSpace technical support personnel. "Specialized expertise and personalization are the most impressive things to me," says Cunningham. "By personalization I mean that the people on my team know my site -- most of them have their own account," he explains.
For performance monitoring, Pick-a-Prof uses RackSpace's "Rackwatch Platinum" service. For $115 per month, the monitoring service notifies the data center if a ping fails and personnel there restart the Web servers. Cunningham says he's never been to Rackspace's facility in person. "Any problems that came up were quickly handled remotely," he reports.
As to security, Cunningham says no news is good news. "It's like a referee," he explains, "You don't notice them until they do something wrong." To date he's never had a complaint.
Lessons from the Outsourcing Journal:
- In the past, Web hosters focused on volume business and avoided value-added services. Now they're becoming more flexible.
- Often, Web hosters offer self-service through portal interfaces. Customers can check to see if their network is running fast enough, submit trouble tickets or download the latest software patches. Self-service gives the customer more control over the outsourced solution.
- Web hosters are teaming with players like content distribution network providers to offer better performance.
- Performance monitoring and customer service now come in tiered offerings - the more the customer pays, the more granular, prompt and thorough the service.