On The Line With Joel Kocher of Interland

JK: We believe the hosting industry will continue to consolidate, both through acquisition and failures. The key to survival and success in this business is scale, which drives profitability. So it makes sense for Interland to take advantage of current industry conditions to acquire more scale quickly. However, we’re not interested in a growth-at-any-cost, roll-up scenario. We look specifically for business that fits our model and will integrate well into our business. So a perfect acquisition target for us is a hosting company that targets small and medium business customers, is well run and efficient, and delivers great customer service.

TH: The fact that you can make these acquisitions so frequently, what does that say about the state of the industry right now?

JK: The state of the industry, in the wake of the dot-com meltdown, has certainly created an opportunity for a well-capitalized player to be a consolidator. Right now, it is more economical to acquire customers through acquisition than through marketing. That will not always be the case, so even while we are taking advantage of the opportunities available right now, we are developing a longer-term organic growth strategy.

TH: Some hosting companies have commented (to TopHosts.Com) that Interland is just merely trying to acquire customers with the recent spate of acquisitions. Is this a fair assessment?

JK: Gaining greater scale and driving profitability is certainly a primary objective of our acquisition strategy. And in fact, some of our acquisitions are purely customer acquisitions. But in a couple of cases, we’ve acquired the entire company because of the technology and talent they bring. We’re trying to build Interland into not only the biggest hosting company, but also the best. So we look at an acquired company to discover how we can implement the things they do better. In some cases, it’s almost a reverse integration.

TH: How effective has Interland been with regards to company integration of recent acquisitions? How will the integration with Dialtone shape up?

JK: Each integration is unique, and depends on many factors. We have a dedicated integration team that is responsible for learning as much as possible about a company during the due-diligence phase of the acquisition, and then developing and executing the integration plan. With an account-only acquisition, the integration process may take as little at 90 days.

In the case of Dialtone, the team is still working to develop the integration plan. But we see Dialtone as an important key to expanding our dedicated hosting business, so the integration plan is probably more appropriately viewed as the business plan for that business segment.

TH: Tell us what Interland’s cash position is after the Dialtone acquisition.

JK: Our cash position and other financial figures will be updated when we report quarterly earnings on June 26.

TH: We’ve heard that Dialtone’s IDCs in London and Mexico will be sold off. Why? Does Interland not want to participate in the European and Latin American markets?

JK: Those facilities were sold prior to the acquisition. Interland does serve both European and Latin American customers out of our U.S. data centers. Since our strategy does not include co-location, it is not essential to have data centers in every country or city in order to serve international customers.

TH: Do you have a working figure of Interland’s market share in hosting? What percentage was through acquisitions?

JK: We don’t release market share numbers, but we have seized the lead in both shared and dedicated hosting, surpassing Verio in total paid hosted Web sites and total customer accounts, and with the Dialtone acquisition surpassing Verio and Rackspace in dedicated servers under management.

TH: Would you say NTT/Verio is your biggest competitor? What other hosting companies out there in your assessment (other than those in the Interland family) are doing a good job?

JK: Verio is certainly the second-largest player to Interland in terms of number of customers, but there are a number of smaller hosting companies that compete in certain segments, or in niches. I’ll have to pass on naming them, because chances are good I’m interested in acquiring them, and I’d hate to drive up the price.

TH: Have you been approached by companies (larger than Interland) that are interested in acquiring your company? If the right offer were made, would you sell Interland?

JK: Like any public company we have a duty to listen to offers with the best interests of our shareholders in mind. At this point, though, we are focused on continuing to increase the efficiency and profitability of our company while delivering superb hosting services to our customers, and our current capital structure gives us everything we’ll need to get that done.

TH: What can customers expect from Interland in the future? What should the hosting world expect from Interland in the future?

JK: Interland customers can expect to continue to see improvements on many fronts. We are working hard to improve customer satisfaction. We’ve become the biggest, now we want to become the best. The hosting world can expect that Interland will continue to be an industry consolidator and a formidable competitor. We intend to set new standards for Web hosting, raising the bar for reliability and customer service.

TH: On a personal note, are there any other companies that you have modeled Interland after, or at least, borrowed some philosophies from? Are there any particular CEOs that you’ve learned from or any that (in your estimation) have the right formula for success?

JK: Our focus on creating an efficient, value-driven business model is definitely a result of my personal history with Dell. We sum up the “formula for success” with this value equation:

Value = “Goodness” / Price

(value equals goodness divided by price)

We strive to be the value-leader. That’s NOT synonymous with lowest price. Our goal is to increase the value of our offering by increasing the “goodness.” That means creating the most reliable Web hosting service in the industry. That means improving our customer service, setting new standards for ourselves and the industry. That means creating products that truly meet the needs of small and medium businesses, including making Web hosting user-friendly for the mass market. We have a long way to go on each of those fronts, but I believe that Interland will be the company to set the new standards for the industry.

TH: What is the working environment like at Interland?

JK: Probably the best way to describe it would be “hard-driving.” Like most companies these days, we’re leaner, doing more with less. That means a lot of people are wearing more than one hat - including me. But it’s not just that we have to work hard, we’re also motivated by the opportunity we see before us. It’s exciting to know that we can make history in this industry. It’s exciting to have moved into the number one position, in an industry that is still really in its infancy, with enormous growth potential ahead.

TH: Ultimately, what is Interland intent on proving to the hosting world?