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Interland Faces (Big) Integration Challenges

If you were going to give a theme song to Web hosting company Interland, you might pick The Beatles "The Long and Winding Road." However, some customers might think that's too generous and opt for Steve Miller's "Take the Money and Run."

Since its purchase by Web hosting rival HostPro in March 2001 (the Micron PC subsidiary kept Interland's name), Interland has been on buying binge (see Interland Finishes Holiday Shopping, Buys Hostcentric). In just 16 months, the company has acquired a large chuck of the Web hosting market to become one of the largest player in the space. Former well-known competitors like WazooWeb, AT&T Small Business, CommuniTech, Dialtone Internet, Innerhost and Hostcentric are all part of Interland now.

Interland also acquired the retail hosting business of Interliant (which filed for Chapter 11 bankruptcy protection last August) in the fall of 2001. (See Interliant Sheds, Interland Grows.)

2002 Buying Spree
  • AT&T Small Business (Jan. 25)
  • CommuniTech.net (Feb. 11)
  • Dialtone Internet (May 7)
  • Innerhost (Sept. 3)
  • Trellix (Dec. 11)
  • Hostcentric (Dec. 12)
  • However, this acquisition strategy, while good for Interland's overall market share, has done little to impress its customers, investors or analysts. With a stock price hovering between $1 and $4 all year ($1.18 as of this writing), Interland's buying binge seems to be over (at least for the time being) as the company pushes back from the table to digest its year-long meal.

    Keeping the Customer Satisfied
    Admitting that problems with customer service and churn have been less than acceptable, Sam Anderson, Interland's chief customer advocate, told ASPnews that the company's No. 1 goal in 2003 is to improve customer service and stem the tide of departures, complaints and public outcry found on Web sites such as webhostingratings.com.

    Read and React
    "Customers can always vote with their feet and I think (Interland) didn't count on this level of churn. My take on it is when they were buying up all these companies they didn't want to spend the money to do the integration they needed to do."

    —Melanie Posey
    Web hosting analyst
    IDC

    Give us your feedback in the ASPnews Discussion Forum

    Over the last quarter the company has lost some 9,000 customers. Not a huge number compared to its remaining customer base of 218,000, but significant enough to catch the attention of Melanie Posey, IDC's Web hosting analyst. Posey said Interland's plan a year ago called for it having one million customers by 2005. Not very likely at the current rate at the current rate of turnover.

    "Interland's strategy has kind of been to try to get ahead of its costs by just piling up subscriber numbers," said Posey. "Customers can always vote with their feet and I think (Interland) didn't count on this level of churn. My take on it is when they were buying up all these companies it seems like they didn't want to spend the money to do the integration they needed to do."

    To alleviate this situation, in May Interland hired Anderson, who has spent the last 10 years fixing customer-service problems at companies big and small. Since Anderson joined the company, Interland has done some homework and decided to embark on a "Superproject" that involves installing updated customer service software, consolidation of acquisitions, and standardizing all of its infrastructure on its proprietary blueHALO platform (see Interland Ups the Ante on Shared Hosting).

    "For all of these projects the focus is around the customer; ensuring that we provide them a more robust and secure platform as well as a better customer experience throughout these consolidations," said Anderson.

    In 2002, the company invested more than $2.5 million to improve customer care including hiring PricewaterhouseCoopers (now owned by IBM) to suggest changes; buying work force management software from Aspect, and a new Avaya switch, Anderson said.

    Read and React
    "We certainly realize that we've had some issues in the past that does come with growth and does come with maturity. We've recognized that and we've made the investments to correct the situation."

    —Sam Anderson
    Chief customer advocate
    Interland

    Give us your feedback in the ASPnews Discussion Forum

    In 2003, the company will spend an additional $2 million to roll out a call center quality monitoring tool from Nice and new billing software from ADC. This last investment is of particular importance since customers have complained of being billed even after their accounts were closed. Anderson blamed the existing billing software and poor business processes for the problem.

    "We certainly realize that we've had some issues in the past that does come with growth and does come with maturity. We've recognized that and we've made the investments," to correct the situation, Anderson said.

    Citing improved customer service metrics like an 118-second reduction in the time it takes to answer an customer's call, Brian Kovalesky, an Interland spokesperson, also points to a January Editor's Choice Award from Web Host Magazine as evidence of the company's turnaround. However, a conversation with Ron Dunlap, Web Host Magazine's founder and executive editor, revealed he and his team would have rethought their decision had they known about Interland's plans to dissolve acquired companies CommuniTech and WazooWeb and move those customers onto Interland servers in Atlanta.

    "That's something we didn't know," Dunlap told ASPnews. "It would be harder now to give them the same award."

    You Get What You Pay for
    Not all of these problems are necessarily Interland's fault contends Corey Ferengul, Meta Group's vice president, Operations Strategy. As with other hosting companies aimed at the small business market space, providing good customer service for the meager monthly fees these companies charge is a major challenge.

    "If you're a customer looking for a high-service environment you don't go to Interland," Ferengul told ASPnews. "Interland is about giving you low cost, high volume."

    What does raise an eyebrow, said Ferengul, is Interland's corrected January 10 press release detailing its fourth quarter numbers and a change in accounting procedures to something called "Generated Cash," which Interland describes as "a metric that represents GAAP Net Income before Depreciation and Amortization, Less Capital Expenditures."

    IDC's Posey is also skeptical about the accounting practice switch. "You always have to wonder anytime a company starts futzing around with the metrics and trying to come up with metrics that they preferred to be measured on," she said. "You kind of wonder why the game keeps changing every quarter for them."

    Now's the Time for Interland
    For now, Posey is content to take a wait and see attitude towards Interland. She said that she's advising her clients not to buy the stock if they don't already own it, and to hold it if they do own it. If Interland can execute on their customer care and integration strategies, start to grow organically (as promised) and realize the synergies and cost savings of their acquisition strategy, then things will probably improve.

    "Overall, what Interland has to do," said Posey, "is they finally have to put up or shut up at this point."


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