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Hosting Industry Perspectives: Issues, Trends, and OpportunitiesMelanie A. Posey
Research Director, IDC
May 9, 2007
Presentation Title (Manually Change in Master Slide)2
Agenda• Service Provider Landscape, 2007
• Forecast and Market Segmentation Update
• The Demand Side: What Do Businesses Want?
• The Supply Side: What Works?
• Q&A
Service Provider Landscape, 2007
IT Services/Systems Integrators
Pure-plays/MSPs
Application AggregatorsNetwork Operators
SMB Hosters
Colocation Providers
Diversity of Vendors, Diversity of Value Propositions
Hosting Offer Landscape, 2007
Application Hosting
Infrastructure-as-a-Service
Online Business Enablement
IT Outsourcing/ Consolidation
SaaS-enablement
Hosted Applications
Service Providers’ Dilemma: Is What You’re Selling What Customers Need (or Think They Need)?
Market Highlights Increasing enterprise willingness to outsource hosting/management
of infrastructure for both public-facing Web sites and internal enterprise applications and platforms
Growth in small businesses Web site implementation and evolution of shared/mass market hosting into comprehensive online business solutions
Demand for content, particularly Web 2.0-type applications, is fueling interest in dynamic hosting and networking solutions to improve performance and reliability.
The return of colocation: increased power/cooling requirements of next-generation architectures are generating new enterprise interest in off-site solutions. Supply constraints in key metro markets result in increased service provider pricing power.
Utility/Virtualization computing: customer interest and adoption is expanding, but service provider delivery and pricing models are still evolving
U.S. Hosting Services Market Sizing
Revenue by Service Type, 2006
Dedicated Hosting
5%
Shared & Virtual Private
Server20%
Colocation17%
Complex Managed Hosting
58%
Revenue by Service Type, 2011
Colocation14%
Shared & Virtual Private
Server15%
Dedicated Hosting
4%Complex Managed Hosting
67%
Source: IDC, 2007
Total Market: $8.2 billion Total Market: $16.4 billion
Outsourced Hosting
59% 20% 15% 6%
55% 24% 18% 4%
55% 20% 17% 8%
45% 28% 25% 3%
0% 20% 40% 60% 80% 100%
<100 employees
100 to 999employees
1,000 to 9,999employees
10K+ employees
In-house Fully outsourced Partially outsourced Don’t know/Refused
Source: IDC Hosting Services Survey, 2007
• Drivers include interest in flexible service options, data center power/cooling requirements, networking needs, and utility/virtualization
• Overall adoption of outsourced hosting has remained constant over past 2-3 years, but companies that do outsource are shifting more and more responsibility to service providers
• Among small businesses, some of the in-house hosting segment is actually leveraging DIY tools and free/low-priced hosting from online service aggregators
Farming it Out: Outsourcing Decision Factors
48%
58%
59%
64%
66%
66%
67%
72%
0% 20% 40% 60% 80%
Performance and scalability
Improved backup/redundancy capabilities
Cost savings
Improved security
Facilitate technology upgrades/migrations
Time-to-market/speed of implementation
Lack of internal skills and/or resources
More efficient way to meet regulatorycompliance mandates
Decision Factors for Outsourced Hosting
• The largest businesses surveyed (>10K employees) cited security and regulatory compliance as the Top 2 decision factors. In prior years, the key issue was cost savings
• Performance improvements and skills augmentation are key decision factors for smaller companies.
• Smaller companies are also more influenced by the cost savings aspect of outsourced hosting
Source: IDC Hosting Services Survey, 2007
10%
59%
61%
67%
69%
74%
77%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Lack of cost savings
Sufficient in-housetechnical skills
Security
Maintain control
Lack of flexibility
Regulatorycompliance concerns
Other
Inhibitors to Outsourced Hosting
Why Aren't They Outsourcing?Why Aren't They Outsourcing?
• Lack of cost savings emerged as a more important outsourcing inhibitor in 2007 than in previous years’ surveys
• The largest businesses surveyed are most concerned about retaining control of their infrastructure and believe that the security of the infrastructure and applications is best handled in-house
• Smaller companies are most confident of their ability to handle Web infrastructure in-house
Source: IDC Hosting Services Survey, 2007
Service Provider Selection: Who Gets The Call?
Other3%
Don't know3%
Pure-play hoster7%
Web designer16%
Application services/mgmt.
provider13%
Shared/dedicated hosting provider
10%
Telecom provider18%
ITO/SI22%
Web services/software
company 8%
• IT outsourcers/systems integrators are well represented among larger companies, especially the 10K+ employees segment
• However, telecom carriers are also key service providers across the market, including large enterprises
• Position of ITOs/SIs, telecom carriers, application management providers’ is partly a function of how large enterprises buy hosting:
Nearly 50% of large enterprises procure hosting as part of a larger network or IT outsourcing engagement
Source: IDC Hosting Services Survey, 2007
What Else Are Hosting Customers Buying?
8% 5%
29% 30%
30% 32%
30% 32%
31% 37%
34% 41%
34% 29%
37% 35%
39% 31%
44% 30%
0% 10% 20% 30% 40% 50% 60% 70% 80%
None of the above
Desktop management/help desk services
SaaS-based business apps
Enterprise application management
WAN/data networking services
Disaster recovery/business continuity
IT outsourcing
Hosted email/messaging
Storage
Network security
Other Services Purchased from Current Hosting Provider
Source: IDC Hosting Services Survey, 2007
• Disaster recovery/business continuity is a key growth area, especially in the small business segment
• Hosted email, already the primary hosting add-on for SMBs, is set to pick up steam among large enterprises
• Large enterprises indicate continued interest in bundled hosting, networking, and IT outsourcing services, underscoring the central role of hosting in enterprise business processes
Hosting Spending, 2007• <100 employees
Average: $1,900/month
Median: $630/month
• 100-999 employees
Average: $10,000/month
Median: $1,150/month
• 1,000-9,999 employees
Average: $16,100/month
Median: $6,400/month
• >10,000 employees
Average: $35,000/month
Median: $22,100/month6%
11%
20%
20%
13%
12%
6%
11%
0% 5% 10% 15% 20% 25%
Don't know/Refused
Less than $100
$100 to $999
$1,000 to $4,999
$5,000 to $9,999
$10,000 to $24,999
$25,000 to $49,999
$50,000 or more
Monthly Spending on Web Site/Applications Infrastructure
Source: IDC Hosting Services Survey, 2007
Modest year-over-year growth in adoption of outsourced hosting, but healthy year-over-year spending growth highlights the importance of upselling/cross-selling and providers’ ability to position hosting as the foundation for convergence, SaaS, and other key IT transformation initiatives.
New era of business critical systems New business trends
New usages New consumption models New environment
New era of business critical systems Real-time, network-centric IT applications “Anywhere, anytime, always”-enabled business processes Business-criticality as a key driver: reliability, availability, security
Enabled by technology innovations▪ Content delivery networks▪ Application optimization/acceleration▪ Virtualization▪ Broadband▪ IP Convergence▪ Mobility
Hosting as the foundation
Customers
Employees
Partners
Suppliers
Hosting
Storage
CDN
SOAApps.
Security
What Works? Levers of Differentiation• Build a better value proposition: hosting as a means toward an end…
Dynamic, flexible IT infrastructure Functional software apps (your own or someone else’s) Community Advertising
• Automated service delivery and process development Repeatable solutions or “factory” infrastructure Certified libraries of hardware, software and applications Portals for customer self-management of on-demand functionality
• Integrate virtualization and service-oriented architectures into your own business model: creation of infrastructure-based “aggregation ecosystems” with services laid on top of utility platforms or plugged in from the side (partner-developed services)
• SaaS-enablement: But be clear on the hosting provider’s role – is the hoster provider the mall, the mall’s anchor tenant or both?
• Hosted applications: must be more than “software-as-a-service” -- the functionality must solve a key business problem
The differentiation dilemma: no one wants to be “just” a hoster but a clear, sustainable value proposition means service providers must be careful and not overreach
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