IBM and EDS lead web hosting market

IBM and EDS took advantage of market changes in the $2.3bn (£1.4bn) North American market for managed web hosting and related...

IBM and EDS took advantage of market changes in the $2.3bn (£1.4bn) North American market for managed web hosting and related services in 2002 to extend their lead over rivals, research firm Meta Group has concluded in a recent report.

As the web-hosting market evolves, large suppliers will increasingly dominate, according to Meta.

Driving the widening gap between suppliers in the market is the commoditisation of low-end services, such as providing co-location infrastructure, and the relative immaturity but growing importance of high-end consulting and full-management services, the firm said.

"The key differentiator in the market is professional services," the report states. "Two web hosting leaders emerged in the US market during 2002: EDS and IBM.

"These organisations are distinguished not only by their size, but also by their ability to grow web hosting as a viable business while evolving services, increasing leverage and extending partnerships," the report says.

IBM and EDS have the staffing, infrastructure, technology and financial resources to adapt to changing customer demands and to weather rough market conditions, Meta said.

They also have the advantage of bulk: With the economy shaky, customers are reluctant to sign up smaller suppliers which could be acquired or wiped out, according to the report.

Challengers AT&T, Verio and Sprint have solid hosting offerings, but are struggling to expand into high-end services, Meta said. Meanwhile, Qwest Communications and Cable and Wireless suffer from over-investing during the boom years, and are focused on regaining financial health.

Gartner gave IBM and EDS top marks as well in an analysis of the North American web-hosting market issued last week. During a time filled with acquisitions, reorganisations and bankruptcies, the consistency the two firms offer is a strong selling point, Gartner said.

Both analyst firms noted that IBM's sterling services carry a correspondingly elite price tag.

While Meta argues that pricing is less important to most customers than reliability, Gartner's report concludes that budget pressures in 2002 prompted a number of customers to begin to shift hosting services internally they would outsourced before.

Suppliers will need to respond with more flexible offerings and pricing to "slow the rush" toward internalisation, Gartner said.

Meta forecasts that while low-end services commoditise, high-end services will not become a fully developed market before 2005.

A willingness to treat web hosting as a loss-leader for winning larger services deals, along with prudent use of resources, will be key for suppliers hoping to lead that sector, it said.

Stacy Cowley writes for IDG news service

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