Prices plummet in Web hosting services market

Prices plummet in Web hosting services market

The slowing economy has led to a glut of data center space, resulting in steadily plummeting prices in the Web hosting services sector.

Paula Hunter, chairwoman of the ASP Industry Consortium, likens the Web hosting market to the market for real estate, which fluctuates according to how well the economy is doing.

Web hosting firms are "offering other services to offset a loss in revenue or erosion in pricing," she said.

Vendors in this space, which include Exodus Communications and Globix, didn't return phone calls seeking comment about whether the recent economic downturn has led to a slowdown in demand for their services or to price cuts.

But Ted Chamberlain, an analyst at Gartner, said the price of data center space has dropped by as much as 25 per cent in the past year. Last year, companies charged $US110 to $120 per square foot. Today, they're charging $75 to $80 per square foot, said Chamberlain, who expects further price cuts.

Interliant, an application service provider, owns six data centers in the US but Interliant President and CEO Bruce Graham said the company won't likely be affected by any pricing wars because data center operations account for only about 2 per cent to 3 per cent of its revenue. The bulk of Interliant's business is in providing managed services, he said.

Analysts and vendors distinguish co-location, a type of service under which vendors provide bandwidth, floor space and basic monitoring for Web site servers, from more complex hosting services under which vendors actively manage the servers.

More vendors are shifting to the latter approach as the Web hosting market matures and co-location becomes a commodity, said Dana Tardelli, an analyst at Aberdeen Group. "Hosting is becoming a plain vanilla service," he said.

Falling prices may be good news for customers, but they're obviously bad news for vendors. Exodus' stock recently traded for less than $2 per share on the Nasdaq stock exchange, well off its 52-week high of $69 per share.

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