Just as the dust was starting to settle around the EarthLink Network-MindSpring Enterprises merger, Concentric Network took the nation's No. 2 shared Web hoster spot.
Cupertino, Calif.-based Concentric paid $54 million in stock and cash on Monday to acquire Secaucus, N.J.-based Web hoster 9 Net Avenue. The acquisition will give Concentric a total of 104,000 Web hosting customers, just more than the 90,000 EarthLink and MindSpring claimed after announcing their merger. Concentric executives are excited about the deal, because even with an acquisition price of around $600 per customer, shared Web hosting is still a hugely profitable affair.
"Shared hosting as a product family has a much higher margin than other parts of the access business," said James Isaacs, vice president of business development at Concentric. "It's just financially attractive to be in this business."
While Isaacs wouldn't confirm that margins of 80 percent are common in the Web hosting space, he said the figure is "in the ballpark." Only $20 million of Concentric's projected $140 million in 1999 revenue will come from Web hosting - dynamics that executives at the Internet service provider (ISP) are planning to change.
"We can compete in the shared Web hosting space because telcos don't get it very well - that's a good place for ISPs to be in," Isaacs said.
Concentric might not stop at this latest acquisition in order to boost its presence in the shared Web hosting space, Isaacs added. However, the ISP doesn't plan to go further up the value chain into dedicated and complex Web hosting.
"I just see colocation as a real estate game," Isaacs said. "And frankly, if telcos decide to get into this space - and compete with the likes of Exodus [Communications] - they would simply crush us."