Magic Quadrant for Pan-European Web Hosting, 2H03

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1 Markets, M. Halama Research Note 9 September 2003 Magic Quadrant for Pan-European Web Hosting, 2H03 New vendors have appeared, and others have sharpened their focus. All those in the Magic Quadrant will satisfy some users, but even Leaders can't suit everyone. This Magic Quadrant will help you make an informed choice. Core Topic Enterprise Networking: Network Service Providers and Services Key Issue Which network services will enterprises use to meet their end-user demands? This Magic Quadrant covers providers of business Web hosting services, including colocation of servers, simple shared and fully managed Web hosting. The vendors in Figure 1 are included according to criteria in "Criteria for Pan-European Web Hosting Services Magic Quadrant, 2003." Figure 1 Magic Quadrant for Pan-European Web Hosting, 2003 Challengers Leaders T-Systems EDS IBM Global Services Ability to Execute Siemens Business Services Equant HP Services Atos Origin CSC PSINet NTT/Verio Savvis BT Global Services AT&T Digex and MCI Cable & Wireless Colt Telecom Niche Players Visionaries As of August 2003 Completeness of Vision Source: Gartner Research Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Leaders AT&T has expanded its Web hosting offerings in parallel with its network, to the mutual benefit of both. The U.S. telecom company's investment in management, monitoring and automation systems is reaping rewards. AT&T is promoting services beyond its U.S. client base to European clients. There are price advantages over some rivals. Restructuring has improved flexibility toward global clients, but its latest rationalization of contract processes is less flexible for some regional clients, as it prohibits local differences in sales practices. Sales have grown, but from a small base. Some prospects are not yet convinced. AT&T is well known in Europe but not primarily for Web hosting. The company prefers to offer selftested products and does not try to be first to market with new services. This approach appeals to some but lacks the inspirational marketing AT&T needs to attract and convince more prospects that it can deliver Web hosting services. BT Global Services (BTGS) has focused on Web hosting as an independent revenue stream and enabler of other offerings, like end-to-end business solutions. The company has built up its European network, and its services reach many national markets. BTGS has expanded its portfolio, which covers colocation services, where there is capacity or an opportunity to sell other services, and services beyond managed Web hosting. Company structure, bar repeated name changes, has settled. BTGS is gaining "mind share," but has far to go. BTGS needs to offer better value or reduce prices, which can be higher than those of some competitors. BTGS has established and growing revenue streams. It is improving capability, but can grow complacent, so clients need to negotiate terms and keep BTGS to them. Its parent, BT, has controlled debts, so concerns about financial and corporate viability have eased. Improved financial results and BT's focus on information and communications technology should end uncertainty about BT's commitment to Europe and rumors of selling BTGS. IBM Global Services has multiple revenue streams from professional services to support it, and values Web hosting in its own right. It has kept developing services while increasing 9 September

3 flexibility to more prospects. Its clients are generally satisfied with all but price. To capture smaller customers, it has invested in automated, ondemand Web hosting services that use utility models and grid computing. This will reduce its costs and cut prices for clients, though it could cut prices further. The company needs to work hard to deliver the sales and client support to match its ambition. Improving its customer portal will help. Challengers EDS has improved vision but lost some headway in ability to execute. It has been notorious for high pricing, which is harder to justify as other players have improved ability. EDS has responded by integrating Loudcloud's technology in a modular automation approach to cut costs and prices. Price cuts are now reaching the market. Established EDS clients have deep pockets and find service exemplary, but EDS claims that service-level agreement (SLA) penalties are not negotiable. All clients should negotiate terms and prices, especially in the short term, as EDS will be keen to benefit from its new modular approach. Equant expects its Web hosting business to grow faster than its network business. It has invested to keep in contention in managed services and must spend more in data center development to maintain its ability. It benefits from network reach, which enables services from dedicated hosting to broad business solutions. Equant mostly spurns small and midsize businesses (SMBs) as it focuses on global accounts for profitability, but may have to be more flexible. It can sell low (that is, take a small part of a larger contract) and build account relations and revenue over time. It could do well in the midmarket, but technology and scaling its sales and support are challenges. To maintain progress, Equant must consistently satisfy clients. Some find its SLA penalties inadequate and Equant is reworking them. Siemens Business Services (SBS) has a strong process-based approach that appeals to conservative clients. It offers a fair range of standard and customizable Web hosting services. It tends to widen its offerings, funded by a good development budget. SBS has modest ambitions but seems committed to Web hosting. Its portfolio choices make it flexible to customers' needs. Lead times for standard services can be short. Standard deals have reasonable SLAs and adjustable penalties for customized services. But pricing is above average. 9 September

4 T-Systems is the IT services and global network division of Deutsche Telekom. Hosting operations are backed by established revenue streams, substantial channels in some national markets and broad competence. It uses proven technology in a wide portfolio including simple services like Web design. Often expensive, T-Systems aims at major accounts in the midmarket. Its standard SLAs are low, despite its pricing. Penalties are not included, but can be negotiated in customized deals. T-Systems has invested in utility computing to save costs and enhance margins rather than to cut prices. It addresses SMBs through resellers and is working out how to resell automated, ondemand services. T-Systems could improve by moving more customers from standard to customized services. Niche Players Atos Origin took over KPN's Web hosting services; then grew in two directions. One strand develops applications for clients that then need hosting; the other provides Web hosting. Together they offer a strong service range. The portfolio is unconnected where the strands should meet, but each seems able to satisfy its own clients. Atos Origin does not see Web hosting as a vital activity. It will need to consolidate hosting into its overall business strategy and discipline the strands to benefit from business flowing between the two. Clients must ensure that Atos Origin will develop as they need before signing contracts. CSC has invested to upgrade the security of its European data centers. Its service range is wide but coverage limited by the geographic spread of centers offering Web hosting. Expansion is planned and it spends highly on service development. CSC's data centers benefit from its network services, and typically those of three other network providers. CSC targets large customers and those wanting extra IT services. Clients can get fair prices for entry-level services, and can bargain on price for higher services where CSC's brand is not strong. CSC keeps standard SLAs low, but can raise them significantly. Clients should always negotiate SLAs and prices, as the company has room to yield in large contracts and is intent on growing. Awareness of CSC has risen, but it may find it hard to expand unless its investment starts to bear fruit and pricing gets clearer. 9 September

5 Hewlett-Packard (HP) handled the distractions of merger with Compaq well. The HP Services (HPS) division focuses on wider contracts, but is winning mind share in the Web hosting market. Given its size post-merger, it could challenge the leaders. With its partners, HPS appeals to small and large organizations. Its portfolio of pure Web hosting services is average. It does not target specific vertical sectors, despite HPS's experience in wider contracts for some vertical industries. HPS has had limited but growing success in Web hosting in Europe. Hosting is chiefly part of wider service contracts and often gained through partners. This makes HPS a short-term target for customers wanting to negotiate on price but get a wellbacked service provider with wider abilities. HPS's emphasis on self-care services appeals to companies with technical competence, but limits the advantages of outsourcing for others. NTT/Verio benefits those that need a global provider. But the hosting company, NTT/Verio, and the network company, NTT, are separate and do not have unified strategies. Clients must negotiate appropriate SLAs and penalties. Its partners generally deal with large organizations with fully managed application hosting needs. NTT/Verio focuses on smaller customers with less complex needs. Customers can take additional services from system integrators (SIs) and software houses. Automation and self-configuration keep prices down and improve flexibility, but investment is low. SLAs and penalties are fair, but clients must be prepared to monitor breaches, as they are not paid automatically. PSINet Europe has strong management that has rationalized its network and data centers. It has an effective basic range of Web hosting solutions that are well matched to its network. It does not yet have the size to innovate like some players, but has developed reasonable monitoring tools and services. Service levels are average to high, but SLAs are by negotiation so clients should be ready to bargain. PSINet Europe does not undercut prices, but its pricing is often lower than others in the Magic Quadrant. Customers should claim price cuts on renewal as costs decline and hardware has been paid for. PSINet Europe is not associated with PSINet in the United States. PSINet Europe is privately owned and not subject to all disclosure requirements. Clients concerned about its financial stability should discuss the accounts with the company. It has already satisfied clients across many corporate cultures. 9 September

6 Savvis Communications treats services as utilities, relying on systems integrators for added value. It has strong revenue as a fully managed hosting and network service provider in the financial services industry, but is stretching into areas like retail. Clients should be ready for high prices in return for products specific to a vertical industry. The reliability of its network gives Savvis credibility in other industries, but it is not a huge company. Savvis acquired Intel's hosting facilities in 2002, and Wamnet's content distribution networks and media clients in It sees Europe as a growth area and invests heavily in R&D. Its hosting portfolio focuses on its key vertical industries. Savvis plans to broaden its range with features like workflow management and increased automation. Visionaries Cable & Wireless (C&W) plc announced in June 2003 its intention to withdraw from the U.S. hosting market. It remains committed to the market in Europe where it has unified its offerings and management structure. It still convinces major customers to sign and renew deals without being cheap, proving its ability to manage large account relationships. Smaller accounts, in particular, should be concerned with pricing, as some specialties, like firewalls and content distribution networks, are less-complex activities. C&W can be more inspirational and needs to lead the industry. Its development budget needs increasing R&D is limited to partner and client projects. It could benefit from making the results of R&D work available to other clients promptly. Financial concerns about Colt Telecom have brought tougher cost control, and it has closed some data centers. Hosting creates some revenue directly and there is mutual benefit with its extensive metropolitan networks. Prices for Web hosting services are not as competitive as those for its network services. Service range is fair, but Colt is best known for colocation. Technical competence and customer satisfaction (from a small customer base) are good. Colt faces the challenge of scaling up satisfactorily. Digex and MCI are parts of the former WorldCom that may emerge from Chapter 11 bankruptcy protection as MCI. Branding will need to be clear: Digex offers high-end services; MCI covers shared and colocation services. Both are committed to Web hosting and the European business is effective at adding value. This should reassure customers, but they should keep contingency plans up-to-date. 9 September

7 The hosting businesses benefit from the infrastructure, services and customers of MCI's network. The services have not strayed beyond the leading edge and offer a range of shared and dedicated hosting options, including applications hosting often through partners. They cater for smaller accounts in Europe (unlike in the United States) and large clients, and are particularly flexible with those that also take network services. Customers and prospects have concerns about the parent company, and pricing, which can be high compared with some, may be an issue. Prospective clients should bargain hard with Digex and MCI. Others Many vendors have not yet qualified for this Magic Quadrant. These include local, national and specialists providers without a full range of Web hosting services, such as Interxion, IXEurope and Rackspace. Consolidation, cooperation and technology advances may bring the size, expertise, products and strategy needed to qualify and even challenge the leaders. Bottom Line: The growing market for Web hosting creates many demands. Between them service providers meet the challenge to fulfill them. No single player is suitable for all end users, but there is someone for everyone out there. 9 September