Nov 2, 2001 : The webhost industry: week review

📅 November 2, 2001 - It's been a less-than-stellar week for the Nasdaq, save for a tech rally Thursday after it was revealed that a deal had been reached between Microsoft and the Justice Department. Aside from Thursday's rally, however, the Nasdaq was mired in negative territory most of the week because of anthrax fears, a major project disappointment at Boeing and concern regarding Argentina's debt situation.
In the Web hosting sector, one of the biggest stories of the week didn't occur until Friday when hosting firm Data Return was purchased by software and Web service firm divine Inc. for $33 million in stock.
Under the agreement, which was unanimously approved by the Board of Directors at each company, divine will acquire all outstanding shares of Data Return for a fixed exchange rate, with each outstanding share of Data Return converted into 1.9876 shares of divine's common stock.
"Data Return's proven experience, world-class technology and leading-edge capabilities in managed hosting are a compelling fit with divine's mission to be the preferred fully managed services provider for complex, mission-critical extended enterprise applications," said Jim Dennedy, President of divine. "Combined with Data Return, divine Managed Services achieves a critical mass of revenue, a clear path to profitability entering 2002, a solid distribution channel into enterprise clients, and automated tools to scale the business. These are the key ingredients for a sustainable competitive advantage that will allow us to dominate the enterprise managed services market."
Divine previously purchased content management specialists Eprise in September. Shares in both companies were largely unchanged in trading Friday morning.
Keeping with acquisitions for a moment, Interliant, Inc. said Monday it had sold its shared and unmanaged retail Web hosting business to Interland, Inc. for an undisclosed sum as part of the company's "ongoing restructuring."
This marks the second major acquisition for Interland this year, as the firm purchased Web hosting firm HostPro last March.
"The sale of our retail hosting business - one of our non-core business areas - is another step in the execution of our restructuring strategy. Interliant will continue to be a major player in the Web hosting sector through our Branded Solutions offerings," said Bruce Graham, Interliant president and CEO, in a release.
The short-term reaction from markets wasn't very positive, as Interliant lost about twenty percent of its share value. The company was trading at 38 cents Friday morning. Shares in Interland, meanwhile, were trading at $1.60 Friday - a 15 cent gain from the company's opening price to start the week.
Of course, acquisitions weren't the only newsworthy events this week. On Thursday, European managed hosting firm Worldport Communications unveiled a security solution designed specifically for the financial services industry, providing them with more data storage and Internet security options. The company said its new services were in response to the fact that financial services account for one-third of all online trading, new consumer traders have sent demand additional storage space even higher.
On Wednesday, digital infrastructure and Web services firm Metromedia Fiber Network (MFN) said it had been chosen by Sony Pictures to provide managed services for Screenblast, a "broadband creativity platform" allowing people to gather and share creative ideas through audio, video, music, movies, animation and special effects.
Investors took this as good news, and sent shares in the company soaring more than ten per cent. Metromedia was trading at 75 cents a share Friday morning.
On Tuesday, fault management specialists Micromuse Inc. said communications giant Verizon Enterprise Solutions Group had implemented the company's Netcool suite to consolidate its network status information and provide real-time alerts and information regarding Verizon's network.
And on Monday, Linux specialists Red Hat Inc. and managed hosting firm Rackspace Managed Hosting unveiled E-Commerce Complete, a hosted e-commerce solution that allows Linux users to customize their e-commerce site with greater ease. The suite is an integrated package with Red Hat's E-Commerce Suite, which can be pre-configured on Rackspace Linux servers. This gives developers from small and medium sized companies a stable enterprise-level solution, along with support from Rackspace and Red Hat.
Red Hat had a relatively uneventful week in trading, was valued at $4.70 a share in trading Friday morning.
Looking ahead to next week, it will be interesting to see how markets react not only to concerns over anthrax and Argentina, but key U.S. job data being released Friday. Also keep an eye open for continued investor reaction to the purchase of Data Return as the hosting industry continues to consolidate.