Posted: 1/2002

Wholesale Channel

Choose Your Web Hosting Wholesaler Well

By Josh Long

Fred Weller, a web applications developer, received some disturbing news from four customers in October. The businesses and nonprofit organizations couldn’t access their web sites or e-mail, and their Internet service provider wouldn’t return phone calls.

Weller, CEO of Buena Park, Calif.-based DreamStreet Media Inc., had no direct partnership with that ISP, but in response to his customers’ concerns tapped wholesale web hosting provider Verio Inc. to restore their Internet operations.

Weller and others say partnering with a competent and financially viable web hosting company is integral to a successful relationship, but it is not a given in today’s quirky market.

With the sector’s bellwether Exodus Communications Inc. filing for Chapter 11 bankruptcy protection this fall, the web hosting industry is undergoing a major shakeout. Web developers, systems integrators and VARs are choosing their web hosting partners carefully, particularly as ISPs and web hosting companies struggle to stay in business.

Partners are “shifting from fly-by-night web hosting providers to more stable providers,” says Glenn Lewis, director of channel sales at Verio, a wholly owned subsidiary of Tokyo-based NTT Communications Corp. Verio partners with more than 7,000 resellers.

Weller, who has partnered with Verio, says his clients’ bad experiences are not uncommon. Many ISPs are ill-suited to handle the sophisticated Internet needs of U.S. businesses around the clock, he and other IT specialists say.

For instance, ISPs often do not have the appropriate engine installed on their servers to support the programming language the web applications developer employs, Weller says.

Citing another example, Weller says he stopped working with XO Communications Inc. more than a year ago because its technical support was not as knowledgeable as he required.

Verio’s Lewis estimates 30 percent to 40 percent of new channel partners turned to the company after their web-hosting providers went out of business or de-emphasized their reseller programs or removed a product applicable to resellers.

One systems integrator advises IT specialists to select a trustworthy partner and get everything in writing when forging an alliance.

“All too often vendors or partners come up with really lame excuses as to why they overstepped their bounds” by threatening to steal business away, especially during tough times, says Oli Thordarson, president and CEO of Huntington Beach, Calif.-based Alvaka Networks, a systems integrator. “You have to make sure you really have a good contract.”

Thordarson says he also looks for a partner that can provide advanced managed services such as applications monitoring and hardware maintenance onsite.

Model Programs

The relationship between a reseller and a web hosting provider has potential to be tenuous, sources say, but note that in a strong partnership both companies will feed one another leads.

Web hosting companies provide various types of channel programs. Affinity Internet Inc., for example, offers three programs that reflect various options open to resellers.

One is an affiliate program in which anyone from a traditional VAR to a recreational organization to a multilevel marketer can generate a one-time referral fee through an online banner promotion or direct referral. There also is a reseller model, through which a partner can receive a discount of up to 40 percent on the retail price based on volume. The reseller program represents about 90 percent of the company’s partners. A third, strategic model allows partners to commit to volume levels. Partners may participate in cooperative advertising and tap the web hosting provider for customer support and billing.

In the reseller and strategic model, the actions of the wholesale provider are not transparent to the small to medium-sized business customer.

In addition, wholesale providers are putting control into the hands of their resellers through the web. Interland, which recently announced an agreement to acquire an undisclosed number of customer accounts belonging to Interliant Inc., offers channel partners a portal site, automated package ordering and billing, and web-based sales training and online marketing tools.

Market Demand

Affinity Internet’s director of sales and channel programs, Tiffany Bova, says more VARs are partnering with the company as hardware margins continue to drop and companies look to fill a more comprehensive role for their clients.

Verio’s Lewis agrees. In the early days of the Internet VARs were tech-savvy, but they didn’t always have a knack for sales. Some of them “let the technology get in the way [of a sale] a bit,” says Lewis, who notes that is changing.

“The new resellers … really are focusing on ways they can use the Internet to help businesses become more successful,” he says.

That goal represents a great opportunity; while two in five web sites around the world can process orders, fewer than one in 10 can handle payments over the web, according to research firm IDC. In its eWorld 2001 report, the global research firm anticipates that over the next four years technology spending on web applications will grow four-fold to what it was the previous four years.

Mark Alexander, senior vice president of sales and marketing at Interland, says businesses want to either bring their business to the web quickly or expand their existing web presence at an affordable cost. That is good news for hardware resellers, consultants and other IT experts. On the other hand, the U.S. recession has curbede-business initiatives, sources say.

Forrester Research said, in a survey released in November, the large companies that have slashed their e-business budgets in North America has nearly doubled in the past five months. Half the respondents cited the weak economy rather than concerns stemming from the Sept. 11 terrorist attacks. Although, 60 percent surveyed agreed the events would “exacerbate current economic conditions.”

In an Oct. 17 report, Cahners In-Stat Group states the small business market also looks bleak as the number of small business failures appears to be on the rise. However, the research firm noted IT spending for applications integration and hosting areas is expected to be the least battered.

Bova says she has noticed a moderate decrease in the number of accounts generated through resellers. And Lewis agrees some resellers have slowed down, certainly when it comes to selling higher-end services to brick-and-mortar businesses. Responding to the weakening market, Verio announced plans in September to streamline its global operations, consolidating offices and data centers and reducing its workforce by about 25 percent, or 3,000 employees.

However, Lewis says the company’s channel programs are growing as the pool of web hosting providers shrinks. “We really believe we are really well-positioned to be around for more than a few days,” says Lewis, with tongue in cheek.