Clouds and Traditional Hosting Companies

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I sat on a conference call yesterday wherein we discussed our thoughts on where the cloud was going and how it was going to impact the “traditional” hoster. Our company has been working with hosters for many  years (I started in 2000 and they had been doing it before that) and have seen cycles of service come and go. It used to be that just providing personal web + email was all you had to do to be successful. Then, the “Application Service Provider” (ASP) model started and morphed into providing business-related services and eventually to where companies outsourced entire portions of their infrastructure (think Hosted Exchange, Hosted CRM, Hosted OCS). Throughout much of this, however, locality seemed important – not in reality, but in perception. The vast majority of people would choose to host their services with a company that was close to them, or they had learned by reference from a friend or colleague.

As we walked through the current market directions, and in later conversations on the same topic, I’ve become more and more convinced that unless significant changes are made, the traditional “hoster” is destined for failure. Web hosting, data hosting, email, etc. are all being commoditized by the big boys (read Microsoft, Amazon, Google) making it almost impossible for the small hoster to compete. I expect to see a rise in the number of white label services, and also in the number of mixed-metaphor hosters – What I mean by this last statement is hosters who will present a unified stack of services to their customers and while much of those services may simply be white-labeled reselling of someone else’s services, some key aspects of the “stack” will be provided directly by the hoster. The key is specialization, or niche services. Maybe a hoster offers a specific financial or ERP system hosted and then marries that with services from other vendors.

Another aspect of the call that was interesting to me was the postulation that these hosters were looking for ways to “get into the cloud” – I chuckled a little because they, of all people, understand the benefits of the cloud as they have been cornerstones of such for years. They’ve built their businesses on providing “cloud” hosted services. They understand where the margins are/are not – and know better than most that it’s all about scale. This is precisely why I think that the existing model is in trouble – a moderate size hoster with 1000 – 5000 servers simply cannot compete with the big three who are buying datacenter blocks in shipping container-units – each of which hold between 2000 and 4000 servers.

The game is changing… those who innovate and adapt will be here tomorrow to talk about it. Those who don’t, won’t.