The key theme at HostingCon 2014 this week was how the hosting industry is changing dramatically. One area of particular focus was whether or not the hosting industry is coming to an end and what happens then?
The panel discussion featuring Philbert Shih – Structure Research, Kenny Li – Cloud Spectator, Al Sadowski – 451 Research and Ashar Baig – GigaOM crystallized the conversations and sentiment heard in conversations throughout the conference:
Is the hosting industry coming to an end? Do hosters need to change and, if so, how?
In my opinion, the hosting industry isn’t coming to an end. Instead, it is forcing hosters and service providers to change. They need to adapt their approach to selling cloud services to differentiate themselves from the competition by offering specific value. They need to consider how they’ll position themselves as the value added service provider against giants like Amazon or Rackspace.
Many of the conversations that we heard focused on the idea of federation and the virtual service provider:
SPs should work together where they have strengths vs weaknesses, but only to provide a rounded set of services. Competing on the same services through federation, marketplaces etc. may well be a source of revenue, but not a source of long term growth. Much better plans for growth include M+A opportunities, establishing niche revenue lines, becoming focussed on specific market areas, ultimately doubling down on whatever already differentiates the provider.
We agree that competing on the same services is not going to be a source for growth, but we don’t believe some of the other suggestions from VMware’s hybrid cloud service, federation or others will increase profits or market share. The slowing down of the hosting industry that was brought up by Phil Shih is clearly an indicator that service providers need to change.
In fact last year, we took part in a panel debate with GigaOm on how service providers can no longer be complacent and need to identify what makes them stand out – watch the video here.
By using a federated model, service providers face increased competition, an increasingly commoditized market place and handing over customer relationships to other providers who may not have similar standards to their own. This could decrease margins significantly, create price wars led by the end user and potentially ruin existing customer relationships – will they really stay with one provider when they get a similar service for less elsewhere?
If not federation, how do you compete against the giants like AWS?
Throughout HostingCon, it was clear that cost is not the way to attack the cloud giant. Instead service providers need to think carefully about what value they bring to their existing customers and focus on delivering specific added value to customers, another trend highlighted by Phil Shih.
One example is a customer we spoke to yesterday. The service provider focused on a geographic region and an industry vertical that meant they could understand exactly what their customers’ required and build specific products and services to cater to those needs. This all contributed to the growth and expertise for the service provider.
By finding a niche, service providers can build a business that is essential for users in their target market rather than competing solely on price.
The good news is that Phil Shih also talked about the increased trend of hosting providers starting to build value on top of infrastructure. All this is in line with our recommendations for service provider – build a different, value added solution, market it and the customers will come.
For more information, read our thoughts on how service providers can compete against AWS.
