For many in the traditional IT channel, web hosting was viewed as something better left to ISPs, telcos and hosting companies. However, like any business trying to expand, the same companies are now looking for new ways to go to market, and the channel looks like a good bet.
In all aspects of business hardware, software, integration and services provision in the UK, resellers rule. When it comes to the SME market, VARs have succeeded where large businesses fail. The personal touch has seen resellers controlling the entrance to this very lucrative sector. Hosting companies have been quick to tailor solutions for VARs, laying out many add-on services that can be bolted onto a basic web-hosting package. Reselling web-hosting services is not rocket science, but it does require some skill. Choosing the right mix of add-on services can make or break this new venture.
The idea of web hosting is very appealing, especially if all you plan to do is to resell someone else’s services for a mark-up. The problem with this approach is that this is a fiercely competitive market. Just a quick trawl through the internet is enough to show any reseller that there are hundreds of companies in the UK that offer any number of web-hosting packages. There is also growing competition from abroad. A lot of basic services are very similar, both in content and price. The idea of entering this space might not seem all that attractive, but even a basic package can make money.
“Even if you are offering just low-cost web hosting, there are still margins to be made,” says Andrew Michael, chief executive of Fasthosts Internet, the UK’s largest web-hosting company and supplier of reseller packages. “The best thing to do is to offer some form of add-on services. Services such as web design and mobile email are good ways to build on the basics.”
Rob Bamforth, principal analyst of service provision and mobility at analyst Quocirca, says: “It is a good opportunity for VARs, not only with web hosting, but also with the new services they can add on top. Traditional operators cannot deal with smaller companies. Resellers are much more informed than the high-street operators and can pull together a good solution for their customers.”
A look at the market and the rate of web registrations show that, despite the competitive frenzy, the UK market has a long way to go before it matures. There are still hundreds of thousands of companies that want and need a web presence, with many others hoping to change and improve what they already have.
Eleanor Bradley, director of operations at the UK domain name registry Nominet, says: “The market for web registration is vibrant. Looking at the figures from last year there was an average of 110,000 domain name registers per month. Since the start of this year, that average has risen to 130,000 per month. That’s up by about 30 per cent so far. This year will be much better. There are huge opportunities in the web market. There is also a strong renewal rate of about 70 per cent. This suggests that these sites are being used and are valuable to the people that have them.
“A lot of registrations are coming from smaller businesses that want to get on the net. There are two million registered companies in the UK, but this does not take into account the sole traders and smaller players.”
Assuming you decide to take on a basic web-hosting offering, the key is to figure out what to add on to boost revenues and stand out. But for many VARs, the key will be making what you offer attractive to the customers you already have. Getting into the open market is not for beginners.
“If you are entering the market as a hosting company and reselling services, it can cost hundreds of thousands of pounds,” says Andrew Dollamore, managing director of Streamline.Net. “You can struggle immensely in the first year unless you have a lot of cash. It’s very hard to compete with the larger players that have been around for 10 years. But one thing that a competitive market signifies is a busy market. If you get your offering right you are in a good position.
“Just because it’s easy to set up, this does not mean it’s easy to succeed. You can still make margin from a basic package, but you will not make money overnight. You need to differentiate your offering to have a real chance of making money.”
But differentiation itself can prove to be quite a task. Michael says: “It’s not that easy to differentiate yourself in this space. While your offerings might be different, getting that across to customers is hard.”
Dollamore agrees. “It’s not easy to differentiate yourself in a competitive market. Resellers need to find a niche in their own marketing, and attach web services to what they already sell. For instance, if you already sell PCs to customers, it’s a simple thing to add an icon to the PC that offers users the chance to sign up for web hosting too,” he says.
Many basic web-hosting services offer a choice of Windows or Linux-based sites, multiple domain and sub-domain names, unlimited web site traffic, access to a web creation tool, FTP access, some bandwidth monitoring, domain name registration, and the dynamic HTML scripting language, PHP4. Some offer web email support as standard, while others charge.
The variety of basic web offerings is huge and differs in complexity and price. Some are cheap at about £100 a year, while others boast more features as standard, and can range from £20 to £50 per month. The ability to pick and choose services you need to put together your own specialised offerings is important.
There are a number of simple add-on services related directly to the web site that can be easily sold on top. These include statistics monitoring, visitor tracking, additional database support and search engine optimisation. The latter lets you offer to list a customer’s web site on the top few hundred search engines every month. But it is one that many SMEs miss out on when they first set up a web site.
According to a survey by Fasthosts earlier this year, almost half of all SMEs do not submit their web sites to search engines, which can mean they are rarely found online. In addition, two-thirds of surfers admitted that they rarely look beyond two pages of search engine results, indicating that being online alone does not mean people will actually know you are there.
Michael says: “Search engine optimisation is a simple service to sell, and it is an important one. In 2006, no business can afford to be invisible online, yet many SMEs are. If you are not listed on Google, your web site might as well not be online.”
Other services can include load balancing, FrontPage support, web design and the creation of an e-commerce facility backed up by secure socket layer (SSL) security. None of these options are that expensive, ranging from £5 to 15 a year for password protection and traffic statistics, to £25 to 50 a year for SSL secure server, FrontPage Support and search engine optimisation. On top of a basic web-hosting offering it is easy to double the revenue from each customer by selling on just four or five inexpensive but useful optional services.
Email is an obvious addition. While some services offer email addresses linked to the web site address as standard, most do not. Convincing a customer to invest in email services, of which there are numerous levels, can be a lucrative add-on. Once email addresses for all employees have been established there is the opportunity to upsell spam and virus services, Short Message Service email alerts and the Holy Grail of email add-ons: mobile email.
“The first thing to add on top of web hosting is email hosting,” Michael says. “Just add the email addresses to the domain names and give everyone their own mailboxes. From there, you can progress to see if they want the deluxe email services, such as mobile email via Microsoft Exchange, where employees get to access email and contacts on their mobiles.”
Spam now represents about half of all email, and reselling spam filters is considered an easy upsell.
“We sell quite a few spam filters,” Dollamore says. “We sell a lot of them, because people feel they need them due to the amount of spam they get. Some companies are wary of them because they can filter legitimate email by mistake. But they can be handy for blacklisting certain addresses.”
Bamforth says: “When you start adding email services, things get interesting. But this opportunity grows significantly when you start hosting mobile email for companies to allow staff to pick up mail on the go using smartphones and PDAs.
“How do you choose what devices to use? This is where intermediaries such as resellers should be stepping in. The IT channel has a good understanding of the issues, such as devices, mobile email, communications and interoperability. That’s a perfect opportunity for the VAR to broker the service, and take the complexity away from the customer. All of that is value-add for the reseller.”
Mobile email has been dominated by Research In Motion’s (RIM) BlackBerry device. But while the BlackBerry has proved popular with larger companies, it is not best suited to much of the small-business market.
Michael says: “Mobile email is a massive opportunity. BlackBerry is great, but it’s too expensive for a lot of people. We are finally offering direct push through Microsoft Exchange email using GoodLink software. VARs just need to find a device partner and an airtime partner to offer a full mobile email service to their own clients. The5 email, contacts and calendar facilities are all synchronised. This is like gold dust to the customer.”
The mobile email market is still largely untapped. Competition to BlackBerry has existed in the form of smaller mobile email offerings from the likes of Good Technology, Visto and Seven. They have worked with certain mobile operators and hosters, but with limited success. However, the market is set to change dramatically following the February announcement of Microsoft Direct Push emai l. This will allow email to be pushed through Microsoft’s Exchange servers to PDAs and smartphones running the Windows Mobile 5.0 operating system. Most importantly, this approach is a lot cheaper than BlackBerry.
Hosting companies that have upgraded their Exchange servers with the latest service pack that supports Direct Push are now starting to offer mobile email services to resellers. The cost to the customer is about £10 per month per email user, which is a lot cheaper than BlackBerry. It is still early days in this market, which is good news for VARs, because the big mobile operators are still trying to figure out the best way to exploit mobile email to the business sector.
According to Datamonitor, mobile email accounts will explode over the next three years. The researcher says there are about 650 million corporate email inboxes worldwide, with the potential of up to 40 per cent of those being mobilised. That gives the enterprise mobile email market a potential 260 million subscriptions.
“It’s our view that mobile email will become a large market fairly quickly.” says Alaa Owaineh, technology analyst at Datamonitor. “It’s also going to be a whole lot cheaper than anything out there today. RIM and its BlackBerry is the biggest player, but it has some really strong competition from companies that sell white-label solutions, such as Visto and Seven that sell to the mobile operators. This will grow very quickly and be much cheaper.”
Datamonitor believes mobile operators are in the best position to make the most of the new market. As differentiation becomes more difficult, pricing and partnerships will become key factors in achieving growth.
Reselling Asymmetric Digital Subscriber Line (ADSL) is another option open to VARs that take on hosting, but it is a less-attractive service than it once was. Thanks to the proliferation of low-cost offerings to businesses from established ISPs and telcos, it is tough to make any money from reselling broadband. Still, if your customers are comfortable with your web hosting, there are packages out there that offer VARs the chance to resell broadband at trade prices. If there is money to be made then it is in reselling the highest speed packages. BT recently announced the launch of higher speed wholesale broadband, of up to 8Mbps. This is something that may be attractive to companies expecting higher traffic.
Bamforth adds: “If you plan on reselling ADSL, there are always resilience services that can be added on top of that.”
White labelling can prove a smart way of convincing customers to opt for your web hosting offerings. This involves branding the hosting companies services as your own, and most hosting companies offer the facility. As many resellers know, some customers don’t like the idea of handing over control of parts of their business to unknown third-parties. By branding everything as your own, it can reassure nervous customers that they are merely signing up for a service from their trusted channel partner.
Michael says: “To some resellers, white labelling is very important, because it leaves control of the customer with the VAR. They can pretend that they are offering all of the services as their own. For instance, if a reseller sells ADSL, it does not look as if it comes from us, because we offer personalised domain name system labelling. This makes it look like the service is coming from the reseller. Certain customers need to feel that they are still working with the VAR and not some other third party.”
Finally, there’s security and support. Security concerns remain high. There are numerous services relating to web site security, availability and virus protection that can be exploited. On the support front, many hosting companies offer some guarantee of availability and online support. But these can be bolstered by opting to resell 24-hour phone and internet support services.
There is no trick to succeeding in web hosting. It is all about picking the right mix of services to create some ready-made solutions that will appeal to existing customers. Only after you have convinced those that you work with already to commit, can you begin to start touting for new business.
© Incisive Media Investments Ltd. 2007