The company will close its Web hosting operations at Heathrow and use the building as an extension of its business continuity and data management core businesses.
The announcement came as Guardian reported a loss of £1.7m for the last quarter. Richard Raworth, the company chairman, described the first half of 2001 as, "one of the most challenging in the company's history".
Raworth added, "The board has now decided that, as a result of the excess capacity that has been created in the industry and the lower than expected levels of demand, the group will exit the Web hosting market."
The closure will cost Guardian £8m this year, and a further £4m next year, for an estimated saving of £3m a year as of 2003. Twenty staff will be made redundant.
Guardian started offering the Web hosting service last June when the industry was expected to boom. "These expectations have not been fulfilled and at the same time substantial excess capacity has been created," said Raworth. "As a result, several Web hosting companies worldwide are now in financial difficulties."
It is the second major blow for Guardian, after talks to acquire an unnamed US company broke down earlier this year, leaving Guardian with a £700,000 bill.