HostingCon came to Boston this week, and SMB Research was there to take the temperature of the hosting industry. What we learned is that there is a lot more going on than meets the eye. Exhibitors that we talked to were enthusiastic about the conference and foot traffic – feeling that it was at least equal to, if not up by 10-15% over past years.
Organized into Sessions focusing on Sales and Marketing, Industry trends, Technology, and Management, HostingCon put together a strong agenda that seemed to attract a full-to-SRO audience in most of the sessions. Nearly 150 exhibitors just further tested one’s ability to get to all of the conversations that one wanted to have.
Web hosting firms are, in a sense, at the pinnacle of the SMB sector. Instrumental in helping SMBs to establish their web presence, web hosters know who the SMBs are, where they are , and are coveted for, if nothing else, the account and credit card information that they have on their SMB customers.
Shared Server Hosting
The shared hosting sector is highly fragmented, and very competitive, with relatively low barriers to entry, and still-attractive growth and up sell opportunities in the SMB space particularly. These factors combine to make it a challenging landscape to fathom for sellers and buyers alike. Every shared-server web hosting form that you talk to seems to have their target market strategy. One vendor that I spoke to at HostingCon had done a campaign with spanish-speaking webdesigners for one particular industry vertical.
The shared web hosting companies range from known to the obscure, and from the very small to the large consolidators, like Endurance International, and United Internet, AG. Some of the larger or better known shared hosting firms include 1&1 Internet; Aplus; Blue Host; Dotster; GoDaddy; HostGator; Hostway; iPage; IPOWER; iWeb; justhost.com; Tripod; and Web.com.
Dedicated Server Hosting – and a lot of everything else
HostingCon was not just about the shared-server folks, however. Several dedicated server hosting vendors were also in attendance. Although the likes of Rackspace, Terremark, and Savvis did not make an appearance, 100TB.com; Hivelocity; Limestone Networks; and Peer 1, and SoftLayer were at the event, along with a dizzying array of vendors showing off offerings in hosting operating systems, website builders, data centers, cloud orchestration, performance optimization, merchant accounts, hosting control panels, reselling, social marketing, technical support, backup and recovery, and other supporting technologies.
The Hosting Industry
The nature of the hosting industry being what it is, I gravitated to several sessions addressing the state of the market, and HostingCon 2012 did not disappoint, offering up talks on such things as: “Competing against Amazon in a Commoditizing Cloud Market”, “How Companies Like Yola and Weebly are Reinventing Commodity Hosting”, and “Competing in a Rapidly Consolidating Hosting Industry”.
A panel of web hosters and investment folks provided some intriguing insights into web hosting deals in an early session. Greg Wong (Web.com); Hilary Stiff (Cheval Capital), Joe Bardenheier (Endurance International Group), Sumeet Sabharwal (Navisite), and Jeff Ferry (Goldman Sachs) talked about the state of the market, the acquisition process, and “what happens next” in deal making.
Although there has been talk about slowing M&A in this space, Hilary reported that she had been involved in 19 deals thus far this year. One significant trend she is seeing is a shift in focus in the deals from ‘consolidation” to a more strategic orientation.
Goldman Sachs’ Jeff Ferry focuses, in the deals he is involved in, on the ease of integration as a key price determinant. On the people side, Jeff looks closely at who he dealing with, in a broader sense, and how the other party deals.
On the hosting side, Navisite’s Sumeet Sabharwal said that Navisite’s focus now is more on possible deals that bring in new capabilities or customers, rather than revenue. When they are pricing deals, Sumeet suggested a look at aberrations in the quarter-over-quarter, year-over-year numbers, and how ownership provides explanations for any lumpiness in the numbers.
Endurance International’s Joe Bardenheier said that their rationale in the past might have been to gain customers or to expand and grow their brand. With some 45 transactions under their belt, Endurance is now are looking at deals that are more complementary in nature.
When it comes to the deals, all of the panel members had fairly well-defined focuses on specific metrics, although these varied from one panelist to another. While Greg Wong cited half a dozen different metrics, he puts a particular emphasis on organic growth because, he said, organic growth means that you have figured something out.
Hilary Stiff cited several metrics, including how customers are added, churn rate, and cost of customer acquisition. Joe Bardenheier said that an early gauge was the other party’s valuation expectations. If these are out of range, then this can bring an early end to discussions.
This session on acquisitions was occurring, as it happens, at the same time as rumors are swirling that Endurance International is acquiring, or has acquired, shared hosting vendor HostGator. Such is the nature of the shared web hosting market that one cannot be sure whether this is rumor or fact. Sources have pegged the deal at $225M, with suggestions that this may be Endurance’s largest deal to-date. SMB Research has reached out to Endurance with detailed questions, but as of this writing, Endurance has not yet responded. (Full disclosure: SMB Research is a HostGator customer.)
More insights and take-aways to come. In the meantime, if you have questions about these vendors, categories, or technologies, give SMB Research a call. We would enjoy sharing further analysis with you, and talking with you about what this means for you, what these technologies are, and how you can use these technologies to do more business better.