Melbourne IT (MLB) & Web Central Group (WCG)

Malcolm Turnbull I suppose he thinks email will be delivered by Australia Post or is he going to supply free internet conections and computers to a large pecentage of population. And his suggested email address of first name last name date of birth combination would make identity theft relatively easy. And I thought this guy a brain. How wrong I was.

[OneUp]

A 502,816 share ($729,083) trade. Spicer long ago said he was trying to encourage large current shareholders to sell down their stake to improve liqudity - was it an institution buying?

[stephen]

I bought in this morning. My apologies to the rest of you holders: this usually results in an immediate drop.

[Dimebag]

Oneup,

Nice analysis mate. Just had a bit of a read about WCG in the October issue of Shares magazine as well. Also pretty upbeat.

If you & others could forgive my ignorance of the web-hosting business for a moment, may I ask whether WCG might face potential competition from overseas hosters in the future?

Obviously serving out of the US would have delays in terms of download time, but as high-speed internet becomes more prevailant, this will become less of an issue. If hosting rates in the states are considerably lower, as indicated by the remarks of Stephen's acquaintance, could this pose a threat to WCG?

Or are there other issues that need to be considered in the hosting business?

Interested in your thoughts,
Cheers,
Dimebag (none held)

[TheBossMan]

quote:Originally posted by stephen
Personally I think hosting is a great business. Long-term income streams, high switching costs for your big customers, marginal costs low, little labour required when done right.

Stephen, I disagree. Switching costs are not high in managed hosting or e-mail solutions, its just the familiarity factor that locks in customers. Costs are relatively low, especially if firms do their homework looking elsewhere or doing things in-house. I liken it to our accounts with banks; negligible switching costs, yet most of us tend to stick with the same bank for years despite poor service and cheaper transaction costs with competitiors.

[TheBossMan]

quote:Originally posted by Dimebag

may I ask whether WCG might face potential competition from overseas hosters in the future?

I do not follow the Aus. IT market, but I'd think someone like Telstra or Telecom are best placed to compete? Much like Xtra here.

A weakness area of WCG as I see it is their reliance on Microsoft products. My understanding is, 40% of e-mail market is held by IBM/Lotus and WCG doesn't appear to have expertise there. Which means, they could miss out on revenue streams from e-mail soultions, spam, archiving (a booking industry) from firms who are quite happy with IBM-solutions. The 40% figure was from last year and I don't have the URL links to corroborate it, but I used to work for IBM, so there's the disclosure.

[stephen]

"Obviously serving out of the US would have delays in terms of download time, but as high-speed internet becomes more prevailant, this will become less of an issue."

High speed internet doesn't really enter into it. It's the LATENCY that's the issue. This has an absolute component in the form of the speed of light, contributing a few milliseconds; and another component in term of the processing time incurred at each link in the chain of links between you and the host at the other end.

Eg, the quarter second or so it takes for a packet from my desktop to hit a server in the US mostly comprises the overhead in crossing network boundaries. Absent consolidation in the network, that won't change much. Consider also that it's easier to add network capacity closer to home.

Foreign hosts also present more risk. You have the usual worries about foreign jurisdictions and assessing reputation. Concretely, with every extra step between you and them, there is an extra risk of outage, and timezone differences etc may make it harder to resolve the outage.

Finally, US providers have been much cheaper for years, owing to the potential for economies of scale and different cost structures for network bandwidth - the cost difference is not new. Nonetheless, most serious size businesses don't host offshore, unless they actually have a substantial presence or audience offshore.

"If hosting rates in the states are considerably lower, as indicated by the remarks of Stephen's acquaintance, could this pose a threat to WCG?"

I think contractual and other risk management issues come into play here. I agree with TheBoss that the local telco's are a more real threat (and also a likely purchaser...)

TheBoss, I think that moving hosted servers from one provider to another is expensive, especially if you require little or no outage time in the process. But yes, intertia and the appeal of the devil you know certainly play a part.

[Dimebag]

Stephen,

Thanks for your thoughts and a very useful clarification.

I still have some misgivings about making an investment in a company like WCG because I simply don't know enough about how the industry works to alleviate the high risk of overlooking crucial risk factors. This concept of latency is entirely new to me, and that is not confidence inspiring!

Still, am keen to learn more, and will follow this discussion & WCG's progress with interest.

Thanks again,
Dimebag

[stephen]

A good way to think of latency vs bandwidth is to imagine a pipe. The bandwidth is the equivalent to the diameter of the pipe; so obviously, it's important for speed. Latency you can imagine as the length of the pipe - also important for speed, and a lot harder to minimise.

Gamers in particular care about latency, as do users of video and audio streams. People who merely want to push large volumes of data around may not care so much.

Thinking about risks in a hosting firm;
- do they have enough resources thrown at their data centre to cope with outages of power, network connectivity, hardware failure, blah blah?
- are their billing systems up to it?
- do they collect in a timely way?
- do their customers believe they get good support?
- how large is their customer base (will they hurt if they lose a big one)

By the way, thinking some more about your foreign competition concerns, there is nothing stopping WCG from buying resources in the US and wholesaling in Australia. Eg, in NZ, Webfarm and Popmedia do exactly that. The core value of something like WCG's hosting division is in their customer base, their ability to support them, and their ability to bill and collect, not in their data centre, which could be outsourced. You want your own data centre for managed servers, of course, but by the same token they are much less vulnerable to a foreign offering.

[TheBossMan]

quote:Originally posted by Dimebag

I still have some misgivings about making an investment in a company like WCG because I simply don't know enough about how the industry works to alleviate the high risk of overlooking crucial risk factors.

Did Mr. Buffett invest in Microsoft?