May 2000

BY TONY J. ROUG

With the boom in the Internet and the rush to be there first with new products and technologies, we find ourselves working in "Internet time." That means it's more important than ever to be first to market with innovative designs. And both dot.com startups and brick-and-mortar incumbents face growing pressure to create innovative, highly differentiated e-commerce solutions.

When you are building your e-commerce solution, you have two choices: The traditional approach of hiring a dedicated IT staff, or looking to someone else. Today, the second choice, Web hosting, is becoming increasingly attractive.

THE BOOM IN WEB HOSTING
Since it is built on open computing, the Internet adds a new dimension of choice to your solutions. You can independently decide everything from who should build your e-commerce application to who should support your e-commerce infrastructure. You can purchase and manage Web servers in your dedicated data center, or lease them from a Web hosting company. The Web's architecture uniquely enables your application to be built without regard to whether you build or lease your Web server.

Web hosting is becoming an increasingly popular choice. According to IDC, the market for Web hosting is projected to reach $16 billion by 2003. Companies now offering Web hosting range from new startups like Exodus, Digital Island, Qwest, and even Intel to traditional professional services and telecom companies like AT&T, MCI, and IBM.

The benefits of hosting extend beyond the simple staff and capital cost advantages. A hosting center can provide lower-cost Internet backbone access and service-level availability agreements. A hosting center can economically make the investment to support redundant network access, backup dialup access for maintenance, backup battery-based power, and industrial fire control. Hosting facilities also provide 7x24 monitoring -- all the way up to your applications.

Hosting is also opening up increasingly sophisticated possibilities. For instance, hosting is extending into e-commerce and even enterprise resource planning (ERP). As a result, hosting no longer means just managing Web servers. It now includes managed database software and managed e-commerce application servers. In fact, hosting is now extending to provide almost a complete environment for every type of IT application. The next step is integrating with telecom.

TELECOM-ENABLED E-BUSINESS
As corporations have moved to e-business, what were once separate IT and telecom organizations have now merged. E-commerce is quickly expanding to become more than just accessing a Web server through a browser. Today, it means a complete customer relationship management (CRM) solution including e-mail, voice mail, and synchronized browsing capabilities.

This focus on creating an overall telecom solution is shifting the enterprise focus from simply converging voice and data for lower costs to complete computer telephony integration. This has fueled the industry interest in the emerging "standard" telecom APIs like ECTF S.100, Microsoft TAPI, JAVA JTAPI, or Voice XML. Each API has its merits, but so far, no one API dominates.

The industry has now launched a new set of telecom application servers providing application integration for open APIs. This is known as a computer telephony (CT) server. The CT server manages the telephony functions very much like the Web server manages Internet functions. It performs two basic functions:

1. Provides an open API for application control, and
2. Manages telephony calls, resources, and station sets.

As a CIO decides how to move to e-business, he should have the flexibility of not only choosing who hosts the IT infrastructure, but also who hosts the telecom infrastructure. This is very much like the role Centrex filled in the traditional PSTN, except with the advantage of being built on enterprise technology. With this solution, the CIO is in the ideal position of choosing both a vendor and a hosting service provider.

MAKING TELECOM HOSTING WORK
One of the many success factors for the Internet has been the simple business model for pricing and cost of entry. From a consumer-to-business point of view, the Internet has a simple structure. A client (the browser) connects to a local ISP through a backbone IP provider, terminating on a Web server data center.

As a residential consumer in the U.S., you connect to your local ISP and pay about $20 per month for unlimited low-bandwidth access to the Internet. (You pay about $40 per month for unlimited DSL or cable modem access.) A business contracts a high-speed connection to the backbone and pays based on the peak number of bytes per month (anywhere from $500 to $1,000 per peak MB per month, depending on total usage). In the U.S., the Internet does not have any monthly connection charges, and this model is quickly being adopted around the world.

This model naturally lends itself to a hosting solution -- especially for small and medium-sized businesses. Hosting centers have bulk deals with the backbone providers, which means they can total the traffic to offer the business a better monthly charge for backbone access. Whether the business chooses to buy the Web server or to host it in the public network, the Web application remains the same.

Telecom has a similar network architecture, but the business case is very different. Like the Internet, telecom has a simple client (the phone), connected to a local service provider (PTT or LEC) optionally through a long-distance network, connecting to a business telecom server (a CT server, PBX, or possibly Centrex solution). Unfortunately, the business case is much more complicated. As a residential consumer in the U.S., you get service from the LEC for between $10 and $20 per month (depending on your services). Long-distance service can cost between five cents and 20 cents per minute, depending on the solution. Businesses must contract with both local service providers and long-distance providers to leverage the local calling rates versus the long-distance calling rates.

Next-generation carriers are leveraging the economics of voice and data convergence and changing this complex telecom model. Voice makes up only a small fraction of the bandwidth becoming available in both the backbone network and at the edge through new fiber, cable, and DSL technologies. On the other side, voice is still the preferred mechanism for communications. Analysts predict that by 2002 the world will have more than twice as many phones (close to two billion wireless and wireline) as PCs. This is driving the convergence of Web and phones in multiple ways, which will include integrating browsers with wireless phones through a new technology called wireless application protocol (WAP).

TELECOM HOSTING IN THE INDUSTRY
Today, telecom hosting is an infant industry compared to Web hosting. As telecom integration with e-business matures, a clearer form of telecom hosting must emerge. If looking at the industry interest in open telecom APIs is any indication, this should be coming soon.

Today, next-generation service providers like Level 3 and Qwest are very close to providing a business model to enable a telecom hosting solution. Level 3 modeled its network architecture similar to the Internet solution. It enables telephony applications to control calls in a data center by interacting with their softswitch services -- essentially a network version of a CT server. Other network service providers are offering similar business models through their networks.

Today, many voice portal startups are providing integrated Web and telecom services that leverage a close relationship with a telecom provider -- creating a business model very much like the Web model. As the industry matures, business will drive for a model that allows a choice between owning and hosting without tying the customer to a specific service provider. Like the open Web server, the industry is driving toward an open CT server model to enable this shift.

Tony J. Roug is director of advanced network services for Dialogic Corporation (an Intel company). Dialogic is a leading manufacturer of high-performance, standards-based computer telephony components. Dialogic products are used in fax, data, voice recognition, speech synthesis, and call center management CT applications. For more information, visit the Dialogic Web site at www.dialogic.com.