Thursday, April 26, 2001

Emerging Trends in Web Hosting Market

In the past year, hosting providers have seen both explosive revenue growth and imploding stock prices. In a recent Report, "From Space to Servers: Emerging Trends in the Web Hosting Market," the Yankee Group explores these emerging trends and offers its assessment of the various strategies that service providers are employing to take advantage of the impressive growth in this market. The Yankee Group believes that this market holds enormous promise for companies competing in this space. While the outlook is clearly positive for the Web hosting market, there are certainly challenges, not the least of which is limited access to capital.

Courtney Quinn, a senior analyst for the Yankee Group's Communications Services for the New E-conomy research and consulting practice, stated, "We believe that in order to best meet the challenges that lie ahead, service providers must aggressively add value to existing service offerings. High-margin growth will depend upon the velocity of new value-added service deployment. Furthermore, value-added services can help the service provider truly own the customer, which has become increasingly important as more players look to capitalize on the hosting opportunity. As the market matures, we see new opportunities emerging for providers focusing on specific services, verticals, and customer segments."

Fresh Approach for Online Selling
In its recently published Report "Multimedia Merchandising: Changing the Face of Interactive Selling," the Yankee Group presents current case studies of how audio and video are being used to enhance the online selling process. The company also examines the opportunities enabled by multimedia merchandising and the barriers that could slow the integration of streaming media into mainstream online retail applications.

Research by the Yankee Group indicates that individuals who are more likely to buy online are also more inclined to sample audio and video applications on the Web. Several online retailers have begun evaluating the potential impact that online audio and video have on improving conversion rates and increasing sales.

According to Steve Vonder Haar, senior consultant for the Yankee Group's Internet Market Strategies research and consulting practice, "Internet audio and video—initially perceived as a new platform used by entertainment companies to deliver movies and music to consumers—is emerging as a tool that online retailers can use to grab shoppers' attention, deliver enhanced product information, and convert one-time window shoppers into buyers."

Vonder Haar adds, "Although the integration of online audio and video into online merchandising efforts remains at a nascent stage, the shoppers that Web retailers seek to attract already are embracing multimedia applications."

Overall, about 29% of online consumers have watched some form of video online during the previous three months, according to Yankee Group's Interactive Consumer Survey of more than 3,000 Web users. Within that group of Web video viewers, however, were a larger-than-average percentage of online shoppers. In total, 74% of the users who say they have watched video online also have made a purchase via the Web during the prior three months.

Furthermore, 80% of consumers who have viewed video from their home computer have also shopped online. Compare that to a Web-wide average of 62% of all users who are defined as online shoppers. The percentage of shoppers among non-users of Web video is even lower, standing at 58%. Though the bulk of Web video watched today is in the form of short films or music videos, the strong correlation between online shopping and online viewing of video is a compelling reason for retailers to evaluate the potential applications for multimedia merchandising for their Web sites. The predisposition of online video viewers to also be online shoppers illustrates that these users are likely to have both the inclination and the technology to sample multimedia content.