Turn web hosting services into success

For resellers with the necessary know-how to run and maintain servers, profits are available in hosting. But the VARs that do not have the skills can still secure a piece of the pie by offering hosting services. Simon Meredith explains how

According to John Tsai, vice-president of ISP and hosting provider Entanet, you can make money from selling hosting, but you may be wiser not to leave the complicated bit to the experts.

“There are two types of ‘reseller’ for our hosting services,” he says. “There are those that really know what they are doing and can run and manage the servers themselves.

And there are those that don’t want to take on the responsibility of managing the servers but do want to offer a service to their customers. If you want to be part of the former group, then you really need to know what you are doing. Pretty much any reseller can join the second group.”

If a reseller wants to provide web hosting they really have only two options, according to Adrian Sunderland, technical director at Griffin Internet.

“VARs can resell services from a company such as ours, under their own brand if they wish. Using this method, they need fewer skills than they would if they took on a dedicated server themselves.

This way we would manage the servers, patch them and upgrade them as necessary. This saves money and protectsprofit, because resellers do not need their own data centre and technical teams,” he says.

At this level the skills you need are relatively low-level, claims Andrew Michael, chief executive of Fasthosts Internet. “Anyone that has set up their own web site will be able to resell web hosting,” he says.

“The more VARs want to offer to differentiate themselves, the more specific skills they will have to learn, such as mobile email or free sub-domains with mailboxes. All further skills can be learned through knowledge-based articles on the web, or our support staff.”

But while the barriers to entry are low, getting into hosting in a serious way is something you need to think hard about, according to Chris Barling, chief executive of Actinic, which works with a lot of partners in the e-commerce market.

“It’s very easy to get into hosting because there are a number of tiers of supplier, and it’s possible to buy and then resell hosting at any level of commitment,” he says.

“But that doesn’t mean a viable business can be established. A reseller must be adding value somewhere in the process, and this is not easy with a commodity service such as hosting. It’s not a good idea to start from scratch in such a commodity business, where there are already high-volume and well-capitalised incumbents.”

Sunderland claims that if you do decide to have your own dedicated hosting servers, you will need the technical skill to maintain and upgrade servers in a controlled environment.

Many web-design or internet-focused companies take on the hosting themselves, but most of these firms are not what most readers of CRN would loosely define as a ‘reseller’ business. They are either very definitive specialists or organisations, or companies that want to offer web hosting themselves.

Others portray themselves as the actual host, when in fact someone else, such as Entanet or Griffin, is actually running the data centres, or renting it in major hubs such as Telehouse in London Docklands, and making it all work on their behalf.

These companies tend to set up, manage and monitor the servers themselves. Effectively, all they need to do is rent the space in the data centre, put their own servers into that centre, or simply rent them from another provider. This practice is generally known in the industry as co-location.

Tsai says: “End-users definitely would see some of our customers as being their actual hosting provider. If a reseller is going to do that, it needs to have a very good understanding of how hosting works. We are there to support VARs, but really they are just hiring space on our servers, or in our data centres. They provide the service and the expertise, and charge whatever they can or feel is appropriate for their offering. We provide the infrastructure that sits behind it.

“To run this requires a completely different and very specialist set of skills. No reseller could be expected to develop that level of capability.”

So the level of skill required depends on how serious you want to be about web hosting. Christian Eckley, sales and marketing director at Globix, says: “It depends on how far the partner wants to invest in acquiring new capabilities and the levels of competency that already exist. We’re set up to support both ends of the spectrum.”

If you have a good partner, there is no need to develop in-depth capabilities in-house, because your service provider will be on-hand to provide technical support when it is required, according to Sunderland.

“Resellers own their own customers, and they can bill directly under their own brand. Communication and a good understanding of products and services supplied helps. A partner that supplies supporting marketing collateral and sales training helps to ensure that all parties know what to expect, and how they can help each other progress,” he says.

If you do want to provide all the expertise yourself, developing it will not be that easy. “It just isn’t feasible for resellers to set up their own hosting business,” says Rene Wienholtz, chief technical officer at web hoster Strato.

“The costs of setting up a safe data centre are enormous, even co-location can be quite expensive if you do it on your own. I don’t think that someone could get such low traffic prices that we get with a volume of 1600 terabytes per month.”

Paul Sadlier, UK general manager of Deskforce Europe, a web-hosting and desktop management firm, agrees. “The investment is too great and time to market is too long,” he says. Sadlier adds that even companies with advanced capabilities in network integration cannot expect to make a success of hosting.

“You can’t simply take a LAN solution, make a few enhancements, and call it ‘hosted’,” he says.

“Existing companies have too much of a head start and too much intellectual property. Then there’s the investment in infrastructure and security certification.

A reseller could never match the economies of scale that the hosting provider has. All the effort that would go into developing their own hosting solution would be a distraction. It could have a negative impact on the reseller’s core business.”

Then there is the problem of hanging onto and keeping the networking and internet technical experts you will need to run a serious hosting service. “We have some very capable people,” Tsai says. “They are deadly serious and completely into what they do. But I don’t believe they would stick around for long if they didn’t have the opportunity to work at a high technical level, nor if they were unable to have access to the latest technologies. They will be more likely to stay if they can learn and play with new toys and new technologies on a frequent basis. For that there must be a critical mass of business to support the costs of new technologies.”

Another issue hosts have to deal with is compliance. ISPs and hosting providers are now expected to put measures in place to ensure that their customers are not making illegal or undesirable material, such as child pornography, available on their sites.

The UK’s ISPs have almost completely eradicated such activity. Now the problems originate from sites hosted abroad. Even so, you will still need to have the expertise to be able to monitor such activity if you take on the responsibility for hosting. The consequences of failing to do this could be very serious.

This is another good reason why most resellers prefer to leave it to the experts. Rather than finding the money to invest in the infrastructure, developing the skills you would need, taking the associated risks and trying to manage and hang onto the very specialist skills, you may be better off reselling someone else’s hosting service, letting them deal with all the technicalities, and focusing on other areas where you really can add value and differentiate your business, such as security. The hosting can then just be another item on the price list.

That is the most sensible option for most, according to Wienholtz. They can learn what they need to learn and leave it at that.

“They [VARs] have to develop some skills in systems administration, but they don’t have to take care of all the surrounding elements, such as operating a data centre, setting up the routing and switching equipment, or having people monitoring the site 24 hours a day,” he says.

Instead, the majority of the reseller community will work in partnership with a hosting partner, or simply sub-contract any work of this kind to them.

This does raise the issue of who actually ‘owns’ the customer. In practice, most hosting companies – and ISPs for that matter – work both through partners and sell, or at least service customers directly.

They do this because most resellers simply do not want to get involved with the complicated and messy business of managing hosting customers. As they tend to be specialists, they do not pose a serious threat to their reseller customers, and VARs that are already skilled in managing their own customers have absolutely nothing to worry about, according to Michael.

“The reseller owns the customer 100 per cent. In fact, we offer a complete white-label solution, so the customer may not even know of us,” he says.

But you do need to be very sure about the agreement you have with the hosting provider, because most ISPs operate multiple channels. For example, Globix will give a contract to the end-user directly, if that is what is required, Eckley says.

“Ownership of the customer is driven ultimately by the contractual agreement,” he says. “If Globix contracts with the end-user, then Globix and the end-user are bound by the terms of the agreement. We will [get in touch with them] directly on a day-to-day basis. However, if the reseller is contracted with the customer, they become contractual owners and subsequently accountable for delivering the service.”

Eckley adds that Globix has many resellers that take the latter option and ‘back-to-back’ the service provider’s contract. They also add in their own terms, so that their own services become part of the overall solution. Globix, like other ISPs, is happy to work both ways.

Whatever level you choose to make your pitch at, the most critical skill you need to be successful at hosting is the ability to sell, according to Michael.

“The first and foremost skill is to be able to sell. The rest depends on how you want to provision the services and how you want to differentiate yourself. It might be as simple as the fact that you have a local trusted customer base already who want web hosting from someone they can trust,” he says.

Trust is very important, and for very pragmatic reasons, Michael adds. “It is essential to go with a trusted, established company. Otherwise you will find yourself having to backup absolutely everything so that you are happy you can provide business continuity to your clients,” he says.

Resellers, as well as end-users, need to know that the hosting service is going to work for them and that if it fails they won’t suffer the consequences. Customers take quite a simplistic view of hosting services, according to Tsai.

“At the end of the day, what you are offering is, from the customer’s point of view, a fairly basic service. They have to be convinced that you will look after them and, whether you run the servers yourself or work with a specialist hosting provider, that they can depend on that service. From the outset it’s all about trust.

After that you have to deliver a good, reliable service,” he says. Most resellers choose to work with a partner. This choice matters as much as developing your own understanding and capabilities in web hosting. Your ability to choose the right partner is perhaps the most important skill of all.