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October 28, 2004 

Hostway

 Q&A: Founder John Lee of Chicagoís Hostway on Growing Globally 10/26/2004
The mission of Going Global is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.


CHICAGO Ė John Lee is a founder and is the vice president of marketing at Chicago-based Hostway, a provider of Web hosting services and managed services to some 300,000 customers.

In 1998, Lee joined Hostway President Lucas Roh and a few others to form Hostway with a mission to provide hosting services to an emerging market of small and medium-sized businesses looking to establish an online presence.

Lee is currently responsible for guiding new customer acquisition and brand-building initiatives for Hostwayís global operation. Prior to joining Hostway, Lee worked as a researcher in gene therapy at the University of Chicago. He graduated with a bachelorís of arts in biological sciences from the University of Chicago in 1993.

He sat down with international expert Michael Muth to discuss the keys to and challenges of growing globally.


Michael Muth: When and why did you embark upon international diversification?
John Lee: Hostway was founded in 1998. By 1999, we had opened our Korean operation. Today, we are in seven different countries. The global growth strategy for Hostway is a part of our DNA.

It has been there since the beginning. The explosion of the Internet usage is a world phenomenon. Itís not just a U.S. one. There is no question that all technology businesses today want to expand internationally. The issue is the ability to do it effectively.

We have always felt that to do it effectively we had to weave the international mindset into the everyday fabric of the company.


MM commentary: Commitment to international markets is important. Itís good to see Hostway being a leader in exhibiting that.


MM: What percent of revenues come from outside the U.S. now and in the future?
JL: Already a significant portion of our revenue is derived from outside the U.S. We expect that trend to continue.

MM: Did you expand as quickly as you could afford to or did you concentrate on hitting the right markets at the right time?
JL: Both variables come into play. We have to be able to come up with positive answers on both the market timing and our ability to execute. They are both critical to the decision-making process.


MM commentary: Hostway has done a good job of blending opportunistic M&A, following their customers and just smart expansion (like by targeting English-speaking countries) to reach various markets.


MM: When you expand in each country, how quickly do you expect a positive ROI?
JL: Patience is a virtue but cash in your pocket often makes you more virtuous. The important thing is that everyone has to agree on the assumptions and projections before entering the country.

Different countries have different ROI timetables depending on the respective market opportunity. Hostway has been profitable ever since our founding in 1998. The international expansion has to be within that framework.


MM commentary: Itís important to note that even though returns may be variable in different countries and in some cases maybe even less than in the U.S., they are still investments worth making.


MM: How would you characterize the competition in each country?
JL: They are all very fierce. There is no question about that.


MM commentary: This makes the variable ROI even more impressive.


MM: Why Korea first?
JL: Korea was a natural fit. It has the highest penetration of the broadband users of all the countries. Korea ranks as one of the top countries in terms of domain name registration. Its technology adoption rate is one of the fastest in the world.

In 1999, the opportunity still existed for a company to establish itself and have a chance at becoming the market leader. As some of us came from Korea, we were familiar with the market dynamics. We grabbed at the chance. In 2004, we are one of the top three hosting providers in Korea.


MM commentary: Korea wouldnít necessarily be a natural fit for everyone in this business.

Leeís family came from Korea, he spent some time in school there and he speaks the language. Having someone with that type of experience in a leadership position can be very influential. For others without that kind of background, Korea might not be such a good fit.



MM: How is it that Korea achieved such high rates of DSL penetration?
JL: Several factors come into play. The density of population is high. Of the 45 million who live in Korea, 12 million to 13 million live in Seoul and the surrounding suburbs. Laying out cables is much easier in Korea.

Also, the government-led initiative to make Korea the most wired country helped. Korea still has the remnants of a state-led economy. That means that once the Ministry of Information and Communication sets a policy and a standard, things move quickly.

I donít think thatís possible or desirable here. The culture comes into play as well. When things catch on, they catch on fast.


MM commentary: In case youíre not aware, South Korea blows away the rest of the world with 75 percent household broadband penetration, which is compared to 20 percent in the U.S. (as reported in the Sept. 7 edition of Fortune).


MM: Which countries came next?
JL: Then came the United Kingdom, the Netherlands, Australia, Canada and Germany. We learned, applied our learnings and polished our model at each turn.

MM: Do your customer bases differ much by country?
JL: Our customer base is mainly made up of small to medium-sized businesses in all our locations. Each location is at various stages of attracting enterprise-level clients. I would say that our Korean, Canadian and U.S. operations are well on their way to expanding our enterprise-level hosting clients.


MM commentary: By the way, Sony Music and FOX News are hosted by Hostway in the U.S. and abroad.


MM: How are each of those markets different technologically?
JL: From the core technology standpoint, there are remarkable similarities. The core Internet technologies, as you may expect, are the same.

In Korea, you need to have different Web interfaces. People have a higher tolerance for many features packed into a page and come to expect it. Google-like interfaces wonít do in Korea.

Don Norman and Jakob Nielsen will probably declare the entire country a usability disaster area. Still, thatís what the users want. In other countries, you have to make sure you have the right system in place to support different tax codes and billing methods.


MM commentary: The whole payment issue is different (such as providing tax receipts to customers). Credit cards are not accepted in many places. Bank wire transfers are used instead.


MM: How do you market, sell and promote Hostway when you enter a new country?
JL: Market research needs to be done with focus groups and conversations with potential customers. We already have customers in those markets. Thereís a lot of groundwork that needs to be set by a lot of local experts, agencies and others.

You then develop a detailed marketing plan. Different countries require different communication strategies. In the United Kingdom, offline publications are still strong. We advertise in magazines there. In the U.S., weíre very focused on online.

Thanks to the population density in Korea, we do a lot more event-driven marketing. It lends itself to more face-to-face marketing venues. Our German marketing collateral tends to be more technically detailed. Our products vary in packaging and presentation.

The product superset is the same. The packaging and presentation are determined by the local team.


MM commentary: In case you canít tell, thereís a significant investment in preparation to enter each market. Though it might be expensive, itís better than more expensive fire dousing later if itís not done well. Even on an ongoing basis, marketing in each country is distinctly different.



Disclaimer: Hostway is an advertiser with ePrairie


Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at mike@intlalliances.com.
Click here for Muthís full biography.

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