Cloud Computing's Effect on the Hosting Industry

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For the past decade, hosting companies have made a comfortable living offering relatively undifferentiated (i.e., ‘vanilla’) services to a wide array of corporate customers. Now, the rapid growth of cloud computing is changing the competitive landscape and resetting customer expectations for hosting services.

Traditional hosted and managed storage, web hosting and application management services have enabled small- and mid-sized businesses (SMBs), as well as large-scale enterprises, to augment their in-house datacenters with off-site, third-party facilities to either offset their costs or accelerate their deployment.

The emergence of highly elastic, pay-per-use, Infrastructure-as-a-Service (IaaS) cloud computing services has redefined how hosting services are packaged, priced and provisioned. These innovations have been driven by Amazon Web Services (AWS) and Google Engine, which have redefined how compute power is delivered.

Traditional hosting services have been sold in highly customized fashion, under relatively inflexible long-term contracts. These services met most customers’ needs in the past, but are quickly becoming commoditized by a new generation of IaaS alternatives. Now, hosting companies must determine if they want to match the hyper-elasticity and self-provisioning capabilities of today’s leading IaaS providers.

While the advent of IaaS alternatives poses a real challenge to traditional hosting companies, these new services also represent an exciting opportunity as they attract a growing number of potential customers to the market. This growth is also fueling the other major segments of the cloud computing market –Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) offerings – which are also fertile ground for hosters.

The broad-based movement of computing power, business applications and development tools to the web is driving almost insatiable demand for more hosting facilities. And, it is attracting a myriad of new players. In addition to the originators of the cloud computing movement – Amazon and Google – all of the major hardware and software vendors are staking a claim to a share of the IaaS market, including IBM, HP, Dell, Microsoft and Oracle.

As a result, cloud computing services have redefined the hardware and software marketplace, along with the hosting industry. THINKstrategies believes this ‘cloud rush’ will inevitably result in an industry shakeout and many of today’s hosting companies will be swept away by the wave of new cloud computing services.

In order to keep pace with these new players, hosting companies must invest in a set of new enabling technologies ranging from virtualization systems to application performance management tools. And, these new technologies must be deployed and administered by staff with new skill sets.

But, the survival of old-guard hosting companies will depend on more than just deploying new technologies. It will also require new go-to-market strategies, clearly differentiated value-propositions and better customer support capabilities to counteract the high-volume/low-touch approach practiced by today’s cloud computing leaders.

IT and business decision-makers will need to look at more than the price and packaging of today’s increasingly commoditized cloud computing services to determine which IaaS provider is best equipped to survive industry consolidation and meet their corporate needs long-term in the rapidly changing hosting marketplace.

Kaplan is the Managing Director of THINKstrategies (www.thinkstrategies.com) and Founder of the Managed Services (www.msp-showplace.com) and SaaS Showplace (www.saas-showplace.com). He can be reached at jkaplan@thinkstrategies.com.