albert's analysis: 'Web Hosting: The New Face of IT Outsourcing"

As a board member of The Outsourcing Institute, I have an opportunity to watch the changes taking place in this IT space. In fact a recent series of high-profile multibillion dollar outsourcing mega-deals -- those involving household names such as Boeing and Bank One - have made it clear that the IT outsourcing trend has accelerated.

Fueled by business' growing reliance on the Internet, IT outsourcing, once a fading business practice, is on the upswing. And this time around, outsourcing partners -- from application hosting companies to Internet Service Providers -- are typically playing a more central role in directing their customers' business operations.

What's Fueling the Web Outsourcing Market?

For a while, it seemed that IT outsourcing had gone the way of the two-martini lunch and unlimited expense accounts. Companies that had been outsourcing IT operations were ending their contracts and bringing IT functions back in-house.

Why? They thought it would help them re-gain control of business functions and speed implementation of IT projects. But now, as a growing number of businesses are incorporating the Internet into their operations to help streamline communications and engage in e-commerce, a slowing outsourcing trend is reversing. Faced with the complexity of Web-based systems and a shortage of skilled IT professionals, internal MIS departments have realized they cannot support around-the-clock Web operations alone.

Businesses that have incorporated the Internet into their operations are realizing that it takes more time, expertise and bandwidth than they have in order to be successful on the Web. Internet hosting companies have been created to help manage mission-critical business operations for less than it costs to staff up and handle them in-house.

Yet MIS departments can't give up total control of their Web operations. They need to know that they can deploy new Internet services quickly. They also need to know what's going on with their systems 24 hours a day and be assured that their operations can scale on-demand. And, above all, they need to know that their systems and high-value data are protected from unauthorized access.

Therefore, the objective of Web hosting is to make it easier for companies to operate and compete in our ever increasing information-intensive society. It is about reliably and affordably incorporating the power of the Internet into business operations, communicating with key constituencies and selling goods and services over the Web. Because such Internet operations are becoming more closely tied to a business' success, outsourcing partners are finding themselves in boardroom discussions, shaping and contributing to their client's IT strategy and operational direction.

Who Are the Major Players?

Recognizing this trend, Forrester Research predicts that the demand for Web hosting services will grow to $50 billion by 2002. In order to compete in this market, providers need to ensure successful business transactions over the Internet. Those who take the lion's share of the promising market will be those who provide leading Internet system management services, a reliable, highly-available network backbone and uninterrupted Internet connectivity.

There are some household names stepping up to the challenges posed by the Web hosting market, such as IBM, GTE and MCI WorldCom. There are also new companies staking their claim to this market. They include Exodus Communications, Frontier/GlobalCenter, and Intermedia Communications (formerly Digex) to name just a few.

Many of these companies have access to a high-speed, reliable network backbone and a staff with Internet systems management expertise that can monitor and manage customers' Web operations 24 hours a day. Additionally, they can provide immediate access to additional bandwidth at a moment's notice in the event of increased user demand for a customer's site.

As more and more businesses rely on the Internet as an integral part of their business, and increasing pressure to use it to conduct work "faster, better and cheaper," we have seen a corresponding rise in reliance on these new service providers to stay ahead of the Internet computing curve.

Partnering for Success

Today, high-speed access to company data via corporate intranets, extranets and the Internet has become a strategic weapon. IT outsourcing - specifically Web outsourcing - is no longer seen as a line-item cost reduction. In the expanding information age, outsourcing is about staying competitive and surviving in a Web-based society.

Now that everyone is competing in mega-rapid "Internet time," businesses are realizing the value of - and the need for - combining their internal expertise with that offered by an outsourcing partner. And t is safe to say, with growing reliance on the Internet as a business tool, the demand for Web hosting services will only increase. Companies such as Exodus Communications, whose IPO last March was one of the most anticipated and most successful of 1998, are rising to this challenge, and delivering exceptional service to keep the IT outsourcing trend on the upswing. We think that the operative phrase for the next decade is "OUTSOURCING for Competitive Advantage." Be aware of its promise as you plan for the year 2000 and beyond.

Sam Albert is president of Sam Albert Associates (Scarsdale, N.Y.), a consulting firm that specializes in developing strategic corporate relationships.

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