NaviSite Enters Dedicated Hosting Market

The recent trend in the web hosting market has seen dedicated server specialists move "up the value chain" by adding managed services. The best example of this trend is The Planet, which recently shifted its focus from dedicated to managed hosting to pursue the higher profit margins offered by managed services.  

Here's a different approach to the hosting value chain: NaviSite (NAVI), a managed hosting specialist, announced this morning that it will move in the other direction and enter the dedicated hosting market. The Andover, Mass. company has begun offering managed dedicated servers starting from $199 a month, as well as virtual dedicated servers (VPS) from $149 a month. 

The dedicated hosting model has been bruised by years of pricing wars, and recently has come under threat from cloud hosting and utility computing models that offer the prospect of more flexible, scalable hosting platforms.

NaviSite says its offering will target small and mid-sized businesses, historically the target market for mass market shared hosting providers like Go Daddy, 1&1 Internet, Yahoo and Network Solutions. These providers have typically used the domain name and cheap hosting account to acquire small business customers, and then seek to upsell them to more profitable products like e-commerce services.

NaviSite has chosen to focus its SMB offering on managed dedicated servers, which offer a higher price point than unmanaged servers (also sometimes known as "discount dedicated"). The strategy is to attract a small business that has advanced hosting needs and a budget that allows it to look beyond shared hosting. In other words, the kind of customer that could become a good prospect for managed hosting services in the future.

An interesting wrinkle is that NaviSite has chosen the dedicated server as the way to attract these small business customers, rather than a cloud hosting platform. NaviSite launched a cloud computing offering last week, but its AppStructure service is clearly targeting enterprise customers.

It remains to be seen whether NaviSite's reputation in the small to medium business market has been damaged by last year's botched data center migration of customers of Alabanza, which had been acquired y NaviSite. Some sites were offline for six days as they were moved from Alabanza’s Baltimore data center to a NaviSite data center in Massachusetts. Alabanza specialized in the reseller hosting market, and many of those resellers who were hit hard by downtime likely focused on the SMB market.