European Colocation and Hosting Markets Expecting Growth

The dramatic growth in e-business is causing demand for colocation space in Europe to outstrip supply, according to a report by The Phillips Group. Colocation is the physical location of a carrier’s or ISP’s switching equipment either in a facility owned by an independent company or a network-owning carrier. Increasingly, it refers to the location of a server owned by a Web-hosting company, an ASP, an ISP, or a corporation in a facilities management center.

The report predicts that the colocation market across Europe will grow to US$5.4 billion over the next 18 to 24 months. ASPs, ISPs, Web-hosting companies, and corporations requiring dedicated Internet access without the cost of a leased line now use colocation facilities, both carrier owned and carrier neutral. According to the report, incumbent operators, global network providers, competitive local exchange carriers, and large ISPs are beginning to build and operate their own facilities, and a reseller market is also emerging.

“We are moving away from a colocation model based on pure facilities, to one providing tenants with high-quality networks facilitating e-business,” said Nicole Ainsworth, senior consultant at The Phillips Group. “This model will eventually migrate beyond data centers toward unified communications exchanges.”

According to research by International Data Corp. (IDC), Western Europe is currently undergoing an explosion in both demand for and supply of robust hosting services. Hosting has traditionally been provided by ISPs as an adjunct to their core business, but over the last year it has become the fastest-growing segment of many operators’ businesses. Europe is beginning to see network-focused companies place more emphasis on Web-level and application-level services.

“US providers focused purely on hosting, with the funding and expertise required to make major rollouts of high-end datacenter facilities, are entering the European market and challenging existing providers, including ISPs and public telephony operators,” said James Eibisch, research manager of IDC’s European IP Services program. “In addition, network operators and carriers are increasingly turning to hosting as a way of increasing margins, improving their position in the IP services value chain, thereby attracting investors and strengthening their financial position.”

IDC forecasts the European Web hosting market to increase rapidly in value, from $907 million by the end of this year to over $5 billion by 2004, due to several factors:

• The ongoing demand for a simple first-stage Web presence from the majority of European companies that still do not have a presence
• Increasing size and complexity of existing sites, driven by the need to offer fuller, e-commerce-enabling capabilities within sites
• The continuing rise of Internet-based dot-com businesses conducting the majority of their operations and processes via the Web
• The gradual adoption by major media groups of the Internet as a delivery channel for high-volume content
• The growth of relatively low-cost broadband access methods encouraging content providers to develop more storage-, processor-, and bandwidth-intensive offerings
• The worsening skills shortage problem, creating a vacuum of available resources for businesses

“For many providers, and ultimately for the industry as a whole, plain Web hosting is a transitional step to application-centric services — such as application service providers,” Eibisch said. “The boundaries between Web hosting and application hosting will quickly become blurred, with Web sites containing interactive real-time applications, fitting the ASP model even if it intuitively is part of a Web-hosted service.”