The Big Picture

TH: How has the landscape of hosting been changed? I ask this in light of financial difficulties by some of the best known hosts in the business…WorldCom, Digex, Genuity to name a few. Has NetNation benefited from some of the fallout? What are some concerns customers have expressed to NetNation regarding bankruptcies?

NN: Firstly, I’ll state that this is based on my professional opinion. As NetNation policy, we do not comment on forward-looking issues, so any forward-looking comments on trends and such are my own.

The landscape has shifted from one of many new entrants, to consolidation. I believe the shakeout will continue for a while, since, unlike NetNation, many providers have yet to achieve profitability. Even though we are seeing many companies going out of business, I still see excess capacity in the market, which will tend to drive prices down and force still more companies to exit the industry.

NetNation has seen an increase in business from orphaned customers, but not to a huge degree.

We have noticed recently that customers tend to be much more cautious, and ask many questions about financial stability and industry experience. From my experience, many customers have been burned badly and have every right to ask tough questions.

TH: Industry analysts say that in looking for a host you should choose providers who have six- to twelve-month cash reserves and target dates for reaching profitability. Is this fair? Where does NetNation fit in this scheme?

NN: Of course, it’s critical that the company you choose to host your Web site be financially viable. However, this information can be difficult to obtain if the company isn’t publicly traded. Customers should perform due diligence when choosing a hosting provider because the last thing they need is for their Web site to go down with no notice. I have personally dealt with many customers who have been left with no Web site and no back up at other hosts; it’s a frightening place to be. If customers have concerns about the stability of their hosting provider, they should at the very minimum back up their site files and have a contingency plan to minimize downtime in the event that their provider goes under.

Fortunately for NetNation, we are publicly traded, profitable and have solid cash reserves. Our financial situation is public for all to see. As a public company, customers can review our financial statements on our Web site.

TH: Some market reports indicate that managed and professional services will continue to grow steadily while the co-location and shared hosting segments will see lethargic growth. What is your take on this?

NN: Managed and professional services will almost certainly out-pace growth for shared hosting and co-location, simply because it is an emerging service and the overall number of companies using this service is currently relatively small. As more companies begin to use managed services, it’s natural that we’ll see impressive industry growth stats.

That said, shared hosting still has a lot of potential. Despite the growth of the Internet, almost half the small and medium-sized enterprises in North America still do not have an online presence. I believe it’s only a matter of time before these businesses realize they need an online presence -even at the most basic level. I see an opportunity for the market to double.

Co-location is a different story. These customers were the early adopters of hosting. They tend to have a high degree of expertise and can typically configure and manage their own servers.

Overall, businesses will realize they need hosting services, but that they lack expertise or resources to efficiently manage their online presence -all the while, their Web sites become increasingly complex. This is where professional and managed services provide value.

TH: Has the downturn in the economy affected NN’s hosting strategy? Has demand slowed at all?

NN: I think that industry demand has slowed somewhat because customers have been less willing to invest in new online initiatives given current market conditions, and the pure-play dot-coms have declined dramatically since the burst of the bubble. NetNation has always had a philosophy of fiscal conservatism. As a result, we have benefited greatly in the past from our ability to control costs, maintain cash flow and streamline processes. While other hosts are scrambling to achieve profitability and maintain customers, we attract and keep customers because of the quality service that we provide, and we have managed our costs to become profitable.

TH: What types of services are you seeing the most demand for today?

NN: We are seeing an increased demand in the dedicated server market, but also many of our customers are looking for tools that will help them to succeed online, such as marketing services and software. The latter includes search engine registration services, marketing tracking software and business productivity applications.

TH: What things as a company does NetNation excel in? Are there any other companies in hosting or otherwise that you admire and possibly emulate?

NN: Our greatest asset is our experience -six years and counting -of which many good, qualified people at NetNation have worked hard to contribute to our success and the successes of our customers. We’ve applied our knowledge to build one of the best connected, enterprise-level data facilities within hosting, knowing that the staple of our business is making our customers’ Web sites available to the world, 24/7. Stability, expertise and service are not just words tacked onto some marketing message at NetNation; they are qualifiers that our customers experience everyday. We excel in customer service and support. We have had many customer compliments about the degree of knowledge and patience that our reps have. Many companies have claims, but often their claims fall flat.
We do watch our competition closely, and there are some companies with impressive growth strategies. But, I think few -if any -come close to the level of service that we provide at NetNation.

TH: Is acquisition an option that NetNation is considering for growth? Or is organic growth still the primary focus? What measures are in place to secure this growth?

NN: We are pursuing both organic growth and growth through acquisitions. We do acknowledge that growth through acquisition is a more efficient growth strategy, but it is often not that easy. The transition of accounts -if not carefully managed- can be very troublesome and resource intensive.

TH: What is the working atmosphere at NetNation like? How long have you worked there? What things have changed since your arrival?

NN: I have worked here for over two years, witnessed the burst of the Internet bubble and the market changes that ensued. Since my arrival, I’ve watched the chaos unfold as many Web hosts scrambled to keep pace with the market swing. I think there was a lot of uncertainty as many made a transition from a capital-intensive growth pattern to one of consolidation and restraint. The better hosts are still adjusting, while the others who ignored the change are gone or in the process of going. NetNation was in an enviable position because we had learned many of the lessons that others hosts were facing -namely from our fiscally conservative style of management -and we had no debt. We were one of the first to become profitable.

From a company perspective, we have a great environment of loyal team players who put in a lot of effort because they believe in the company. It was this working environment that allowed us to persevere when things were difficult. The company rewards the extra effort too. For example, after meeting our targets for 2001 year-end, the company is sending every employee on an all expense paid retreat to Mexico!

TH: What can companies expect from NetNation Web hosting services in the future? What trends or market shifts are you seeing in the marketplace? What trends (in your opinion) do you expect to unfold in the future?
NN: Expect new services, improved services and the same great customer care.

One example is our new Referral Agent Program. It has just been introduced, and it allows companies to offer NetNation’s services to their customer base and earn a recurring 25% monthly commission. Provisioning of the services, billing and technical support are all provided by NetNation. All the customer has to do is sell. It’s a great deal -we do the work and the referral agents make a profit. Full details are on our web site.