2007 Web Hosting Outlook

Slide 1: 2007 Web Hosting Industry Outlook Fun Facts & Alarming Stats Game Changers & Likely Winners All that and more in 36 seconds!

Slide 2: Analysts Are Optimistic* 10+ % 15 % 16 % 2007 growth, CAGR through CAGR through according to 2010, according 2010, according Tier 1 Research to Gartner to IDC *Your results may vary

Slide 3: But Mindshare Declines Search volume for “web hosting” on Google Sri Lanka/Nigeria/Indonesia generate most searches

Slide 4: 2006 Saw Capital Influx Acquires EV1 Backs shared Backs web and The Planet hosting rollup led hosting veteran as part of $2 by Endurance Gabriel Murphy’s billion Fund I. International. 27 acquisition of Says is open to deals btwn 2002 Aplus.Net. Says is additional deals. and mid-2006. still shopping. No plans to stop. Plus, Demand Media comes into market with $220M

Slide 5: And Aggressive Marketing “In recent months a growing number of hosting companies have begun paying $100 or 2.5x more per referral for customers who typically pay (?!) $5 to $15 per month... There are people who will pay 2 to 2.5 years of revenue for a customer.” [Rich Miller, Netcraft] Let’s hope they don’t have very much churn…

Slide 6: But Ad Exposure is Transient Super Bowl source: compete.com GoDaddy website visitors, Nov 2005 – Nov 2006 A big splash doesn’t guarantee lasting impact

Slide 7: And You Can’t Count on SEO “yeah, well we came 3rd for "cheap web hosting" 3 or 4 months ago but we've dropped now” Don’t you hate it when that happens?

Slide 8: Most Importantly… Commercial intent of average website visitor, as rated by Microsoft adCenter Labs: 0.92 CDW.com 0.48 Hostway.com 0.89 Target.com 0.47 GoDaddy.com 0.76 Walmart.com 0.28 BlueHost.com 0.63 Amazon.com 0.20 HostMySite.com 0.62 Bestbuy.com 0.03 Aplus.Net Ready to buy (>0.5) Just looking (<0.5) Not all traffic has equal potential

Slide 9: You Can’t Out-Google Google Google: uses free search traffic to promote free products – and earns $0.20 per search even when visitors don’t sign up. You: buy traffic to convince visitors to pay for products. BlueHost says up to 20% of purchased clicks may be fraudulent. Coming soon, “Want Web Hosting? Try Google Apps!”

Slide 10: Or Get Cheaper Than Free “The six pillars of Wikia’s OpenServing offering are: Software Bandwidth FREE Storage Computing power Content over the Internet … and GIVING AWAY 100% of the ad inventory and revenue to website owners!” [Jimmy Wales, Wikipedia Founder] Wikia is also launching a search engine, BTW

Slide 11: The WalMartized Web Targets developers Building one stop “iTunes like” SaaS with similar approach. shops for web store to go live in Web services stack presence (includes 2007. Will act as includes S3/EC2 as websites, map pop- outsourced sales, well as Mechanical ups, local directory marketing and billing Turk, Amazon listings and more!), provider for small Ecommerce Service back office apps and software vendors. Is and Alexa data. marketing. hosting next?? “There’s a world market for 5 Big Computers”

Slide 12: Who’s Got the Power? 15-20% 50% IDC: Share of today’s data Gartner: Share of IT budgets center operating costs taken taken up by energy spending up by power within a few years. No wonder Google, Microsoft and others are chasing utility bargains in the Pacific Northwest… Can you match their cost structure?

Slide 13: Going out of Fashion CacheFly’s CDN Amazon EC2 $0.10 $15 per hour per month Startup CDNs take aim at In addition to Amazon, traditional hosting DataReturn, LayeredTech, providers. CacheFly asks Media Temple, Mosso and customers to “stop ServePath offer beyond-the- hosting, start delivering”. box hosting on grids & Your response? clusters. What’s your move? Standalone servers are becoming passé

Slide 14: Virtualize, or Else Feb 28 Do your provisioning, ticketing and software RHEL5 + Xen licensing systems handle multiple VEs per physical server? Late 2007 What about multiple MSFT Longhorn virtualization platforms? Server + Viridian VE logistics may be the industry’s #1 challenge

Slide 15: More! Bigger! Faster! 10 2x Equinix says demand for 10 Tier 1 Research says Internet GigE ports far exceeds traffic will continue doubling expectations. The Planet’s each year. Sooner or later, 100Gpbs network upgrade will bandwidth overage will sink accommodate just 10 such oversold resellers. super high traffic customers. Cisco CEO: traffic to reach 15 million TB/month by 2015

Slide 16: Which Uses More Resources? 30 million 30 million separate instances user accounts on VS. of Coppermine? Photobucket? Multi-tenant SaaS offers greater efficiency AND ease of use compared with single-user apps. Plus, free functional hosting continues to erode shared hosting market. As an example, Windows Live Spaces signed up 1.3 million users in August alone. Time to reevaluate the shared hosting business model?

Slide 17: 2007 : Likely Winners In no particular order

Slide 18: Savvis Seizes Opportunity “SAVVIS is focused on delivering IT infrastructure as a service. Our new data centers will provide customers with our industry-leading virtualized utility services.” [Phil Koen, CEO] 90% 50% 96% Respondents to Estimated share of Corporate data Enterprise Management web servers that are centers that will max Associates survey who maintained by in- out power capacity by plan to virtualize some house IT 2008 (Gartner) IT infrastructure SVVS (NASDAQ): +24.46 (217.42%) in 2006

Slide 19: SWSoft’s Hosting Equation 10% operations 50% 20% service & support marketing 20% enabling technology “Half of hosting success comes from marketing.” [Serguei Beloussov, CEO] The question is, which market are YOU targeting?

Slide 20: Fanatical Support Rocks “With Rackspace, hosting isn’t even one of Customer my top 20 worries.” [Jason Lemkin, Anxiety EchoSign.com CEO and happy customer] Rackspace signed up 1100+ new customers during Q2

Slide 21: Bring in the Geek Squad Oct 2002: Best Buy acquires FY 2007: Geek Squad to Geek Squad, a startup with reach $1 billion in sales and $3 million annual revenue $280 million in operating and 50 employees profits Are unmanaged hosting providers missing out?

Slide 22: Score One for Eco-Hosting auto insurance + “My client is very anti-direct carbon offset = mail because of the Ecoinsurance.co.uk environmental havoc it causes. Following your article they are likely to host electricity + CO2 their game (and some of neutrality = PG&E their other apps) with Rackspace to make it carbon neutral.” web hosting + tree planting = [UK PR Agency] Rackspace UK Maybe there is a market for green business…

Slide 23: Right Place, Right Time 132 $8.2 million billion Number of Chinese Internet VC investments received by users as of Dec 2006, a 30% Chinese Internet companies increase since last year. Total between early 2005 and mid Internet population in Asia is 2006. More than 70 US VC 387 million, versus approx 1 firms have earmarked funds billion worldwide. DataPipe for China. “Chinese Myspace” Hong Kong is in the right 51.com reportedly spends spot! $250K/month on new servers. Location, location, location

Slide 24: Web Hosting? Try Web OS! “We’re always looking for ways to build new stuff faster by leveraging reusable components, whether that’s software we’ve written or open source software. In some cases this will mean building on top of services hosted by other companies, such as Amazon. “ [Bill Boebel, CTO, Webmail.us] Bill replaced managed backup at Rackspace with S3

Slide 25: Speaking of Reusable… Share Videos Share Photos Share AMIs Amazon Machine Images are used to instantiate virtual servers on the EC2 utility computing service. These packaged environments can contain operating systems, app/DB/web servers or entire applications. EC2 developers can rate, share, reuse and build upon each other’s machine images. According to Amazon, “the more AMIs are shared, the faster the community can innovate”. What are you doing to accelerate innovation?

Slide 26: Do Mess with Texas 15 16 10+ “I know of more than During Q4, 2006, Between Jan 15 and 10 startups in Dallas Amazon Evangelists Feb 27, Amazon that are using met with 15 developer Evangelists will Amazon’s services as groups in Winnipeg, present to 16 groups a way to start… This is Victoria, Silicon in Boston, Redmond, big!” [Alexander Valley, Chicago, Vancouver, LA, NYC, Muse, Texas Startup Washington, DC and Phoenix, Miami, Blog] Fort Lauderdale, London and Dallas, among other cities. among other cities. Guess what? It’s your customers they’re talking to!

Slide 27: Meet Richard Rosenblatt iMall MySpace Demand Media $565 $650 $500* million million million *Current valuation Sold to Excite@Home Sold to News Corp “What if we added some user publishing tools [to unused domains] so that people would come back? What if we built a platform where we could snap that into as many domains as we wanted? We'd have a company that generates its own traffic and its own content - and monetizes itself.” Demand Media is aiming for 2008 market cap of $2B

Slide 28: Desire for fame = more 2 host Would web hosting prospects rather make stars of themselves, their families, their companies and their products on VS. ChannelMe.TV? Or buy good old bandwidth + disk space from the GoDaddy girl? Says Andy Schroepfer, Tier 1 Research

Slide 29: Your Infrastructure is not Your Destiny 1995: eBay = FreeBSD/Apache/Perl/GDBM 1997: Migrated to NT/IIS/C++/Oracle 2001: Migrated to J2EE 2006: Proprietary architecture Don’t let current assets guide your long term strategy

Slide 30: Managed Hosting Choose sides – or target Enterprise with separate teams, the Outsourcing better to speak the customer’s language and VS. evaluate investments in relevant technologies (such as Savvis’ CDN sale High Volume Multi and Level3 and Tenant Web Apps InterNAP’s CDN buys). (SaaS, Web 2.0, Video, etc)

Slide 31: Dedicated Servers Resellers Who Do Developers Who Need Shared Hosting Complex Hosting Diversify AWAY from shared If functional hosting is hosting resellers! The average eroding the shared hosting shared plan now offers as much market, why not reach out to bandwidth/storage as the companies that develop those average dedicated server services? But first, update package. Can rampant your infrastructure to overselling be sustainable? support beyond-the-box and virtualization options.

Slide 32: Developer Hosting Hosting 2.0 Hosting 1.0 Buy Banner Space on BE a Developer Developer Resource Sites Resource Site • Set up a code repository to help customers share, reuse and build upon each other’s work? • Offer co-branded code search on your website? • Provide a venue for customers to become each other’s vendors, customers and collaborators?

Slide 33: Ecommerce Hosting If you implemented auto- recommendation across 35% multiple customers’ online stores, could you boost aggregate sales by 35%? (The technology is available from More than a third of Aggregate Knowledge on a pay- Amazon’s sales reportedly come for-performance basis.) Web from auto- host as ad network – could it recommendations. be the future?

Slide 34: Consumer Hosting Time’s 2006 Person of the Year was “YOU”. You as in the consumers – not the GoDaddy Girl, not the Dotster Dots, not Glob@t’s sex-taping pitch man or CI Host’s human forehead billboard. Web hosting is about putting YOU in the spotlight. Give YOU fame, and get ready for YouTube/MySpace-like traffic.

Slide 35: Also, Bundle Up Can domain names be sold with t-shirts? Dedicated servers with Linux books? Your CFO might give you a bigger marketing budget if all that traffic you buy earns back $1.80 per visitor! $332 ~10 % $1.80 million Revenue per website Commissions earned % of such ancillary visitor (even those by RyanAir for 3rd revenues relative to who don’t make a party products and annual sales purchase!) services sold on its website

Slide 36: Questions? Email: isabel@isabelwang.com Skype: isabelwangdc Daily Updates: http://www.thewhir.com/blogs/isabel-wang