CityReach had eight web hosting centres across Europe and was backed by blue-chip venture capitalists such as Morgan Grenfell and Merrill Lynch.
It boasted several major customers including US service provider USinternetworking, which chose CityReach as the European gateway for its US corporate customers including Rand McNally and Sema Telecommunications.
The news coincided with the publication of a report from the market research firm Frost & Sullivan which warned that a glut of other businesses, unable to survive the period between now and 2003, would go bust.
Marina Martin, author of the report, titled European Managed Web-hosting Market 2001, told CW360 that the Web-hosting market was saturated, and that events at CityReach should be a warning to users.
"The loss of Web-hosting services can be very disruptive to businesses, and is one of the reasons why customers are wary about outsourcing," she said.
Organisations should have contingency planning for Web-hosting, just as they would for other mission-critical activities, said Martin. "CityReach, for example, had a sound technology platform but lacked the financial backing to weather the economic downturn," she added.
Thirty-three of CityReach's 44 staff have been made redundant. The company's receivers, KPMG, said: "Our aim is to run the business as best we can with a view to finding a buyer. We cannot comment on what impact the redundancies will have on customer services."
Martin predicted rapid consolidation of Web-hosting companies, pointing to the recent acquisition of Global Center by Exodus and WorldCom's acquisition of managed Web hoster Digex as examples.
"Customers who have been acquired during a merger or acquisition are likely to be looked after by any new provider, but there will always be a period of uncertainty during any buyout which may affect customer service," she added.