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Hosting Industry Perspectives: Issues, Trends, and OpportunitiesMelanie A. Posey
Research Director, IDC
May 9, 2007
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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
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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
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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)?
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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