Hosting Automation Firms Tout Converged Services

Hosting automation providers are targeting "converged services," positioning their software to help hosting providers sell new high-margin services to customers. Investors see promise in the trend, as indicated by today's announcement that three venture capital firms are investing in SW Soft.

SW Soft is one of the leading players in the market for automation tools, which allow hosting providers to use web-based control panels to place advanced site management tools in the hands of customers. More than 5,000 hosting firms are using SW Soft's software, according to President and CEO Serguei Beloussov. "The hosting automation industry is far from done," Beloussov said at last week's HostingCon conference. "Our products will grow and change over the next two years."

That change will be seen in a range of new services delivered through automation software, including margin-boosting add-ons for hosting companies who face shrinking profit margins on core hosting plans. "Traditional services are getting commoditized," said Sandip Gupta, president and CEO of Ensim, another automation provider. "The average revenue per user is decreasing. Margin is going down. You need to introduce new services. The outlook for converged hosted services has never looked better."

Hosting plans are now being bundled with e-mail services like antivirus protection and spam management, as well as search engine optimization and marketing. Ensim is betting that voice over IP (VoIP) phone service will be an important new offering for hosting providers. On May 31 Ensim acquired Telegea which customizes branded gateways to allow third-party resellers (like Ensim's hosting customers) to sell VoIP to customers.

Beloussov also sees telecom services as a natural expansion area for hosting companies, which can add ISP-style services even as telecom companies introduce hosting offerings. "This is a very important trend," said Beloussov. "Telcos and ISPs are moving in, and this cannot be discounted. There is a sense of denial in the industry, and people think that telcos cannot do hosting. There are a lot of companies becoming full-service providers, as opposed to focusing on a certain area. What you have to do is include more and more in your accounts at the same price."

The investment in SW Soft by Intel Capital, Bessemer Venture Partners and Insight Venture Partners is the first institutional investment in the company. "We were trying to raise funding for years," Beloussov said last week. "What we heard from institutional investors is 'the hosting industry is dead.' Instead, a lot of market opportunity was lost. Because the growth was slower, there's more growth potential remaining."

Beloussov said SW Soft's new financing will be used "for acquisition opportunities" along with hiring additional staff.