Web Hosting’s Adolescence

By Doug Kaye

July 7, 2002 -- (WEB HOST INDUSTRY REVIEW) -- The web-hosting industry is less than ten years old, but some vendors are already acting like teenagers. Loudcloud’s managed services unit announced it was leaving home to go live with EDS, and Intel’s hosting operation was kicked out of the house by its parent. What does it all mean?

Part of coming of age is discovering your place in the universe. When you’re young, you think you can do just about anything, but as you mature you learn that you excel at some things, but not at others. That’s what’s happening in the web-hosting industry. All of the vendors—those that are still around—are regrouping, taking stock, and dealing with the realization that they just can’t do everything well.

Loudcloud, now re-christened Opsware after its namesake software package for server management, has actually been a software company all along. The founders came from Netscape, with software products are in their blood. EDS, on the other hand, has always been an IT outsourcer. That’s what they do, and they’re very successful at it. EDS can’t develop software any better than Loudcloud can run an outsourcing operation, so the deal announced on June 17 makes perfect sense for both companies. EDS who will, in turn, license the Opsware package will acquire the Loudcloud MSP team. Opsware, the company, will become what it always should have been: a pure software company.

The day after the Loudcloud/EDS announcement, Intel decided to shut down its web-hosting business altogether. Again, it’s a matter of the maturity of the web-hosting industry, and Intel’s realization that it’s a chip and motherboard manufacturer, not an IT outsourcer.

Very few companies can successfully cover multiple bases, let alone all of them. One of the exceptions has proven to be IBM. With roughly half of the giant’s revenues coming from hardware and software products, and the other half from services, IBM is unique in the industry. Yet even IBM knows it can’t do it all. Few of us remember, but back in May of 1997, IBM spent $450 million to buy out Sears’ minority share in Advantis Global Network (AGN) to create the IBM Global Network (IGN). Only 18 months later—yes, at the height of the Internet boom—IBM sold its Internet back bone to AT&T for a whopping $5 billion in cash and another $4 billion over 10 years in AT&T facilities management business. Today, IBM owns and operates more data centers than any other vendor, yet it doesn’t own a backbone network.

With perfect hindsight and the remarkable devaluation of backbone networks in general, IBM’s move has proven to be a good one. But even more than demonstrating sound financial judgment, IBM showed that it knew what it was good at and what it wasn’t. After all, it’s been many decades since IBM was a teenager.

The Culture Club

Why is it that so few companies can succeed in more than one domain? The standard answer is that it’s a matter of skill sets or core competencies. But it has far more to do with corporate culture than with skills. After all, you can hire people with the appropriate skills. What’s more difficult is to run a business so that it supports the varying cultures necessary to succeed in more than one discipline.

To understand what I’m talking about, think of how the values differ between people who work in software development versus operations. How do they think, what are their objectives, and how do they go after them? In a software-development environment, the emphasis (as much as we hate to admit it) is on speed of development. Development also means solving new and different problems every day. In operations, the emphasis is on repeatability and quality: doing the same thing over and over again, getting better each time. In operations you practice fire drills. In software development, it’s all about schedules.

The jobs and work ethics are remarkably different. Good 24/7 operations are staffed according to shifts. You’ve got to be there on time, but you get to leave on time. It’s all about the time you spend on the job. In development, flex time is the rule. You can come and go as you like, so long as you get the job done. Overtime is rarely tracked or paid. Even the dress codes and workspaces are different. Culturally, the environments are like night and day, and if you try to mix or swap them, things break.

If you want to know the discipline in which a company is most likely to succeed, you’ve got to look at the top. Ultimately, it comes down to the CEO and his or her background and values. When I want to know what culture to expect in any company, I start with the CEO’s bio. For instance, Ben Horowitz, CEO of Opsware, ran several product divisions at Netscape. Dick Brown, the CEO of EDS, was the CEO of Cable and Wireless and before that Illinois Bell. Craig Barrett, Intel’s CEO, began his tenure at Intel as a Technology Development manager in 1974 (i.e., pre-Web) and has been there ever since. No wonder these companies are best at software, operations and chips, respectively.

Increasingly, we’re going to see web-hosting vendors focus on what they do best and chief executives with backgrounds more aligned with the appropriate cultures. Web hosting is growing up.