Rich Miller likes to say the battered market for Web hosting centers is a victim of the Jacques Cousteau effect.
"It's always exploring deeper and deeper bottoms even when you think it can't go any further down," said Miller, editor of CarrierHotels.com, which publishes data center news and sales listings.
Like many sectors that banked their future on the dot-com explosion, the industry has morphed over the past four years from a state of hypergrowth to one of prolonged contraction.
Still, in the last couple of weeks, even Cousteau himself might have been impressed by the depths that were plumbed, as two of the industry's largest players, Cable & Wireless and Sprint, announced in quick succession that they planned to exit the U.S. Web hosting business.
London-based Cable & Wireless (CWP), which bought its way to prominence in the hosting business 18 months ago by purchasing bankrupt Exodus Communications, told investors it was dropping its U.S. hosting business in a move to cut costs. The company had ranked as one of the industry's larger players, with about 5,000 largely big-business customers for its hosting and IP connectivity services.
Sprint (FON) followed up in a similar vein days later, saying it plans to wind down its money-losing hosting business and move its more than 300 current customers to an as-yet-unnamed third-party provider.
The two announcements come as sellers of defunct data centers are already grappling with a long-standing glut of capacity.
"It's been a buyer's market probably for the last three years, certainly the last two," said Joseph Suppers, president of NodeCom, a real estate firm specializing in data centers, and the publisher of CarrierHotels.
Today, Suppers said, practically every large city in the country has some data center space up for sale. Downsized telcos -- including MCI, which is in the process of selling four large facilities, and Cable & Wireless, which plans to put 15 centers on the block -- top the list of sellers.
Increasingly, centers constructed in the late 1990s and early 2000 to house servers and Internet infrastructure close to key junctures of telecommunications networks are being used for purposes other than the one for which they were originally built. Along with surviving hosting companies, buyers sniffing out bargains include firms seeking space to house backup equipment and the occasional real estate investor.
Typically, Suppers said, buyers are snapping up space for between 10 percent and 60 percent of the sums spent building the structures.
Bobby Patrick, vice president of strategy for Digex, a Web hosting firm, believes that many now-defunct competitors fixated on building out space where firms could "co-locate" equipment but did not focus enough on offering services.
The larger remaining players in the business, which include IBM and EDS, are more apt to provide so-called managed hosting services, which oversee customers' equipment as well as housing it.
"The players who viewed it as a space business have completely underestimated this market," said Patrick, whose firm is one of several that are attempting to woo customers of Cable & Wireless and Sprint with discount offers.
But only a few hosting firms, such as Massachusetts-based NaviSite, which recently bought up assets of bankrupt rival Interliant, are showing much interest in buying ex-competitors' leftover space.
Companies seeking space to store data in the event of a disaster account for a growing share of the buying. Last month, New York Life Insurance bought a building in an Atlanta suburb for just that purpose, saying it believed it was better for security to have multiple data sites.
In a few cases, real estate speculators are stepping in. One private investment fund, Global Innovation Partners, has bought up a half-dozen data centers across the country using money earmarked for technology real estate assets.
But the glut of space is far from soaked up.
Suppers estimates that the retreats of Cable & Wireless and Sprint from the hosting business will put excess supply on the market for about another year.
In the meantime, both companies are urging customers not to leave quite yet, as they hope to find buyers who will take over their businesses as well as their buildings.
"The lights aren't going out immediately on Cable & Wireless or Sprint," said Dana Tardelli, an analyst at Aberdeen Group. "A lot of transition plans have been created so the customers don't feel the pain."
