Business Hosting in a New Economy

Is it possible that business Web hosts are miraculously immune to the magnitude of recession that is gripping the world economy?

As evidence mounts that the current business climate is continuing its steep decline, web hosts in the business hosting space would seem to be vulnerable. After all, consider these facts:

* 2008 was the worst year for firings, layoffs and job losses in the United States since World War II. 2009 is shaping up to be just as bad or even worse.

* 2.6 million jobs were cut in the U.S. economy in 2008 - that was before the true nature of the economic downturn was evident.

* Citigroup, Bank of America and HP laid off 125,000 people - and that’s just 3 companies. There are thousands upon thousands of companies in the worldwide economy.

It is apparent that businesses in general - both large and small - are suffering from a contraction. It would therefore seem natural that any company which depends on businesses as customers would be contracting in this market environment. So one asks the following: How much is the current economic tsunami wiping away the fortunes of business web hosting companies? Is it possible that business web hosts are miraculously immune to the magnitude of recession that is gripping the world economy?

Here are the views of several market experts to frame the current marketplace for business hosting.

If there is a clear proxy for the business hosting industry, it must be Rackspace. The customer base of Rackspace is composed primarily of businesses hosting either critical business functions, or online tools to run some aspect of their business. The company went public in August of last year, and therefore reports results quarterly in addition to holding an analyst call to review the financials and answer questions. Rackspace reported earnings for Q4 2008 and also the full year last week. Here is the preamble to the company’s announcement regarding earnings. ”Net revenues for the fourth quarter ended December 31, 2008 were $143.1 million, up 3.5% from the third quarter of 2008 and up 34.2% from the quarter ended December 31, 2007. This growth in net revenues was achieved even though revenues continue to be negatively impacted by a further depreciation of the Pound Sterling, relative to the U.S. Dollar. Net revenues for the year were $531.9 million, an increase of 46.9% relative to 2007. Customer count increased to 53,300 customers, including 18,480 managed hosting customers and 34,820 cloud computing customers.” An increase of 34.2% year over year doesn’t sound like the ‘gloom and doom’ that is coming out of the automotive, retailing, and banking sectors these days. So at least at the high end of the business hosting industry it appears that business is at least buffered from the economic downturn.

Another business web hosting entity which competes in the dedicated server and virtual server business hosting market is NaviSite Dedicated Hosting. William Toll, the Director of Product Marketing explained how the market looks. From his vantage point: ”Business hosting is growing. Businesses and their IT advisors are driving the move to hosted infrastructure. We are now at a point where in-house infrastructure buildouts just don’t make sense. From colo - to dedicated or virtual to multitenant application hosting businesses of all sizes benefit by outsourcing their IT infrastructure. Capital cost savings, network and computing power economies of scale and expertise are all the key benefits that businesses experience. The rest of 2009 will probably see demand increase. As existing hardware becomes too expensive to replace and with the general acceptance of hosted applications, business hosting will continue to grow.”