To Host or Not to Host

When his company's Web hosting service took three months to make a simple site update, information technology manager Kevin Mazur knew it was time to take back control.

Mazur works for Prudential Tropical Realty, which had outsourced its Web operations in the late 1990s when its online pages didn't require constant updating. But now, Mazur says, the fast-growing Tampa Bay, Fla., company needs a more sophisticated, regularly updated Web presence to remain competitive in the booming real estate market.

What's the right approach for small businesses? The answer depends on a company's budget, its IT staff's technology expertise, the amount of control needed, as well as return on investment and the performance of Web hosting companies. These factors change as businesses grow, so companies should continually re-evaluate their Web operations.

Many small businesses start by outsourcing Web hosting and management, but find—like Mazur's company—that they need to take back more control as their needs change.

Most small businesses have some Web presence. According to a survey by the Yankee Group of Boston, 59 percent of U.S. small businesses had Web sites in 2004, a 10 percent increase from the previous year. And International Data Corp. of Framingham, Mass., estimates that small-business spending on Web hosting will grow 9.5 percent annually, reaching $7.4 billion by 2009.

Most companies use a combination of internal and external services, Yankee Group analyst Sanjeev Aggarwal says. Among companies with fewer than 99 employees, 39 percent prefer to manage their sites themselves but hire third parties to host their sites, according to Yankee's survey. Thirty-five percent manage and host their sites, and the remaining 26 percent outsource their entire Web operation.

ROI or Bust

When faced with the in-house vs. outsourcing dilemma, businesses must determine what their needs and goals are and decide how much they can spend, says Deepinder Sahni, senior vice president of AMI-Partners, a New York market research firm.

For most small businesses, it doesn't make economic sense to take hosting in-house because of the enormous costs and staff time involved with buying, maintaining and securing the equipment, Sahni adds. The easier and more cost-effective solution is to pay a small subscription fee to hosting firms and rely on them to troubleshoot if problems occur.

Taking hosting in-house makes sense if businesses can afford it and if their Web site needs customized tools and features to give them a competitive advantage, Sahni says. The need for more control is another factor to consider.

For Prudential Tropical, the realty's hosting company was too slow to keep up with a market in which some 85 percent of homebuyers start their search on the Internet.

Mazur said the benefits of having complete control and the potential profits from attracting more customers outweighed the disadvantages, which were additional IT costs and an increased security risk of having a hacker or virus attack take down the company's Web sites.

After crunching the numbers, Prudential Tropical executives determined that they would need to generate about five extra property sales per month to pay for the initial hardware investment and the Webmaster's salary.

So the company, which has 100 staff members and 500 independent real estate agents, took the plunge. Now, Mazur is leading an effort to build several new Web sites that include individual pages for each real estate agent and online tools for buyers, sellers and agents to schedule things such as home inspections.

"If we were smaller, doing it in-house wouldn't make sense," Mazur says, "But we need to be nimble enough to make changes on the fly because the housing market is huge and moving unbelievably fast. The return on investment from our new Web sites is unreal."

Service Bumps

For Smart Design, a 70-employee product, interaction and communication design consultancy with offices in New York and San Francisco, the driver to bring Web hosting in-house was service itself. It was using a hosting firm for FTP services that the company and its clients used to exchange large graphics files.

The setup worked for a while, but the hosting firm limited the coding scripts that Smart Design could use for exchanges, says Arthur Niedbala, Smart Design's IT manager. The result was unnecessarily complex file transfers. Because clients had difficulty accessing files, in August the company took over the FTP function and developed a site that was easier to use.

Smart Design invested $3,000, which included buying a new server and software, to get the site up and running. Previously, the company paid $60 to $100 a month to outsource its FTP services. The investment is worth it, says Greg Littleton, Smart Design's chief operating officer.

"If clients can't access files or think they can't access files, it creates the perception that we cannot deliver what we say we can," he says. "We're perceived as experts in technology and interface design, and this new FTP site is significant in reinforcing the credibility that we have."

Host Hunt

Going the hosting route requires companies to shop around. Don't just choose the cheapest hosting vendor because you get what you pay for, Aggarwal advises. Hire well-known national companies. Get referrals and call them to make sure they offer good customer service and technical support, he adds.

Vance Collins, owner of Bended Knee Design, a three-person design and marketing firm in Chandler, Ariz., says hosting his own site is too big a headache for his small staff. "Putting a server up and trying to keep it immune from constant attacks is next to impossible," he says.

Collins, who built his own site but relies on a third-party host, says good technical support is important if businesses want to upload Web materials themselves.

"Setting up a Web site is not necessarily intuitive," he says. "It's not like you put a CD in and it installs itself, so it's important to have good tech support to get answers."