A hosting force for good?

Broadband ISP, Pipex, is to acquire hosting outfit, Host Europe, for over £31m after making a recommended cash offer for the Web business. Host Europe, said the deal is a neat match since more and more punters want telecom services from a single supplier.

Pipex chairman, Peter Dubens, said: "This acquisition will expand our hosting services, further improve the mix of products that we currently offer our customers and increase our gross margin.

"It is an acquisition which reinforces our position in the UK telecommunications sector."

News of Pipex's latest acquisition comes on the same day the company reported its results for 2003.

Turnover at the company jumped from £8.1m in 2002 to £35.2m last year.

With customer numbers rising from 25,000 to more than 150,000, Pipex reckon it's now established at the UK's fifth largest broadband ISP.

The joining of the broadband service provider and hosting company represents a new wave of partnerships and services that are emerging in the area.

Both British companies have called the £33 million deal a recognition that customers want telecom services from a single company, calling broadband connectivity and hosting a "compelling bundled offering."

Gartner Inc. principal analyst Ted Chamberlain says ISP hosts in Sweden, Norway, Germany and the UK have signalled to him that they are increasingly looking to shared hosting and next-generation services.

Those companies are also looking for partners and acquisitions, which means the Pipex deal could be a harbinger of more consolidation and partnership on the horizon.

However, there are those who fear that such a scramble for market share may lead to degradation in services and networks.

Lawrence Jones, Managing Director of total Internet service provider, UKFast, said: “We resisted a buy out by Host Europe in May 2002 because we believe that the drive for market share at all costs would lead to a deterioration in our network. Plus, it would drive prices down in the marketplace – all at the expense of quality. The developments we are seeing at the moment, have only acted to confirm my fears.”

Indeed, some European companies are already aggressively setting their sites on the US market, according to Helen Chan, a senior analyst with the Yankee Group.

"There's a lot more expansion effort from European companies coming to the US," she says.

According to Chan, companies such as UK-based 1&1 Internet, among the most aggressive, are using low prices to try to pry away market share from others in the US small and medium market.

"They don't have the brand cachet to compete, so they're using very aggressive pricing and driving some price pressure," Chan says.

She says prices have gone as low as $45 per month for a dedicated server, or $7 per month for a shared hosting seat. "Five dollars for a Web hosting account is really, really cheap."

She adds that while the US market share of the European companies was still small, larger US providers such as Interland and Yahoo, as well as others, are feeling the ripple effects.

"They're not going to compete on price," says Chan, "so what they're doing is layering on services that add value."

Sources: The Register, Web Host Industry Review Magazine

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