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2007   Web Hosting Industry Outlook Fun Facts & Alarming Stats Game Changers & Likely Winners  All that and more in 36 seconds!
*Your results may vary Analysts Are Optimistic* CAGR through 2010, according to Gartner 2007 growth, according to Tier 1 Research 15 % 10+ % 16 % CAGR through 2010, according to IDC
But Mindshare Declines Sri Lanka/Nigeria/Indonesia generate most searches Search volume for “web hosting” on Google
2006 Saw Capital Influx Plus, Demand Media comes into market with $220M Acquires  EV1  and  The Planet  as part of $2 billion Fund I. Says is open to additional deals. Backs shared hosting rollup led by  Endurance International . 27 deals btwn 2002 and mid-2006. No plans to stop. Backs web hosting veteran Gabriel Murphy’s acquisition of  Aplus.Net . Says is still shopping.
And Aggressive Marketing Let’s hope they don’t have very much churn… “ In recent months a growing number of hosting companies have begun paying $100 or more per referral for customers who typically pay $5 to $15 per month... There are people who will pay 2 to 2.5 years of revenue for a customer.”  [Rich Miller, Netcraft] 2.5x (?!)
But Ad Exposure is Transient A big splash doesn’t guarantee lasting impact Super Bowl GoDaddy website visitors, Nov 2005 – Nov 2006 source: compete.com
And You Can’t Count on SEO Don’t you hate it when that happens? “ yeah, well we came 3rd for "cheap web hosting" 3 or 4 months ago but we've dropped now”
Most Importantly… Not all traffic has equal potential Commercial intent of average website visitor, as rated by Microsoft adCenter Labs: 0.92  CDW.com 0.89  Target.com 0.76  Walmart.com 0.63  Amazon.com 0.62  Bestbuy.com 0.48  Hostway.com   0.47  GoDaddy.com 0.28  BlueHost.com 0.20  HostMySite.com 0.03  Aplus.Net Ready to buy (>0.5) Just looking (<0.5)
You Can’t Out-Google Google Coming soon, “Want Web Hosting? Try Google Apps!” Google:  uses free search traffic to promote free products – and earns $0.20 per search even when visitors don’t sign up. You:  buy traffic to convince visitors to pay for products. BlueHost says up to 20% of purchased clicks may be fraudulent.
Or Get Cheaper Than Free “ The six pillars of Wikia’s OpenServing offering are: Wikia is also launching a search engine, BTW FREE …  and GIVING AWAY 100% of the ad inventory and revenue to website owners!”  Software Bandwidth Storage Computing power Content over the Internet [Jimmy Wales, Wikipedia Founder]
The WalMartized Web “ There’s a world market for 5 Big Computers” Building  one stop shops  for web presence (includes websites, map pop-ups, local directory listings and more!), back office apps and marketing. Targets developers with similar approach.  Web services stack  includes S3/EC2 as well as Mechanical Turk, Amazon Ecommerce Service and Alexa data.   “ iTunes like” SaaS store to go live in 2007. Will act as  outsourced sales, marketing and billing provider  for small software vendors. Is hosting next??
Who’s Got the Power? Can you match their cost structure? IDC: Share of today’s data center operating costs taken up by power 15-20% 50% Gartner: Share of IT budgets taken up by energy spending within a few years.  No wonder Google, Microsoft and others are chasing utility bargains in the Pacific Northwest…
Going out of Fashion Standalone servers are becoming passé $15 $0.10 per month per hour CacheFly’s CDN Amazon EC2 Startup CDNs take aim at traditional hosting providers. CacheFly asks customers to  “stop hosting, start delivering” . Your response? In addition to Amazon, DataReturn, LayeredTech, Media Temple, Mosso and ServePath offer  beyond-the-box hosting  on grids & clusters. What’s your move?
Virtualize, or Else VE logistics may be the industry’s #1 challenge Do your provisioning, ticketing and software licensing systems handle multiple VEs per physical server? What about multiple virtualization platforms?  Feb 28 RHEL5 + Xen Late 2007 MSFT Longhorn Server + Viridian
More! Bigger! Faster! Cisco CEO: traffic to reach 15 million TB/month by 2015 10 2x Equinix  says demand for 10 GigE ports far exceeds expectations.  The Planet’s  100Gpbs network upgrade will accommodate just 10 such super high traffic customers. Tier 1 Research  says Internet traffic will continue doubling  each year.   Sooner or later,   bandwidth overage will sink oversold resellers.
Which Uses More Resources? Time to reevaluate the shared hosting business model? 30  million  separate instances of Coppermine? 30  million  user accounts on Photobucket? VS . Multi-tenant SaaS  offers greater efficiency AND ease of use compared with single-user apps. Plus, free  functional hosting   continues to erode shared hosting market. As an example, Windows Live Spaces signed up 1.3 million users in August alone.
2007 : Likely Winners In no particular order
Savvis Seizes Opportunity SVVS (NASDAQ): +24.46 (217.42%) in 2006 “ SAVVIS  is focused on delivering IT infrastructure as a service. Our new data centers will provide customers with our industry-leading virtualized utility services.”  [Phil Koen, CEO]   90% 50% 96% Estimated share of web servers that are maintained by in-house IT Corporate data centers that will max out power capacity by 2008 (Gartner) Respondents to Enterprise Management Associates survey who plan to virtualize some IT infrastructure
SWSoft’s Hosting Equation The question is, which market are YOU targeting? 10% operations 20% service & support 20% enabling technology “ Half of hosting success comes from marketing.”  [Serguei Beloussov, CEO]  50%  marketing
Fanatical Support Rocks Rackspace signed up 1100+ new customers during Q2  Customer Anxiety “ With  Rackspace,   hosting isn’t even one of my top 20 worries.”  [Jason Lemkin, EchoSign.com CEO and happy customer]
Bring in the Geek Squad Are unmanaged hosting providers missing out? Oct 2002: Best Buy acquires Geek Squad, a startup with $3 million annual revenue and 50 employees FY 2007: Geek Squad to reach $1 billion in sales and $280 million in operating profits
Score One for Eco-Hosting Maybe there is a market for green business… “ My client is very anti-direct mail because of the environmental havoc it causes. Following your article they are likely to host their game (and some of their other apps) with  Rackspace  to make it carbon neutral.”  [UK PR Agency]   auto insurance + carbon offset =  Ecoinsurance.co.uk electricity + CO2 neutrality =  PG&E web hosting + tree planting =  Rackspace UK
Right Place, Right Time Location, location, location 132 $8.2 billion million Number of Chinese Internet users as of Dec 2006, a 30% increase since last year. Total Internet population in Asia is 387 million, versus approx 1 billion worldwide.  DataPipe  Hong Kong is in the right spot! VC investments received by Chinese Internet companies between early 2005 and mid 2006. More than 70 US VC firms have earmarked funds for China. “Chinese Myspace” 51.com reportedly spends $250K/month on new servers.
Web Hosting? Try Web OS! Bill replaced managed backup at Rackspace with S3 “ We’re always looking for ways to build new stuff faster by leveraging  reusable components , whether that’s software we’ve written or open source software. In some cases this will mean  building on top of services hosted by other companies , such as  Amazon . “ [Bill Boebel, CTO, Webmail.us]
Speaking of Reusable… What are you doing to accelerate innovation? Share Videos Share Photos Share AMIs Amazon  Machine Images are used to instantiate virtual servers on the EC2 utility computing service. These packaged environments can contain operating systems, app/DB/web servers or entire applications.  EC2 developers can rate, share, reuse and build upon each other’s machine images.  According to  Amazon , “the more AMIs are shared, the faster the community can innovate”.
Do  Mess with Texas Guess what? It’s your customers they’re talking to! 15 16 10+ During Q4, 2006,  Amazon  Evangelists met with 15 developer groups in Winnipeg, Victoria, Silicon Valley, Chicago, Washington, DC and Fort Lauderdale, among other cities. Between Jan 15 and Feb 27,  Amazon  Evangelists will present to 16 groups in Boston, Redmond, Vancouver, LA, NYC, Phoenix, Miami, London and Dallas, among other cities. “ I know of more than 10 startups in  Dallas  that are using  Amazon’s services  as a way to start… This is big!”  [Alexander Muse, Texas Startup Blog]
Meet Richard Rosenblatt Demand Media is aiming for 2008 market cap of $2B iMall MySpace Demand Media $565 million $650 million $500* million *Current valuation “ What if we added some  user publishing tools  [to unused domains] so that people would come back? What if we built a platform where we could snap that into as many domains as we wanted?  We'd have a company that generates its own traffic and its own content - and monetizes itself. ” Sold to Excite@Home Sold to News Corp
Desire for fame = more 2 host Says Andy Schroepfer, Tier 1 Research VS . Would web hosting prospects rather make stars of themselves, their families, their companies and their products on  ChannelMe.TV ?  Or buy good old bandwidth + disk space from the GoDaddy girl?
[object Object],[object Object],[object Object],[object Object],Your Infrastructure is not Your Destiny Don’t let current assets guide your long term strategy
Managed Hosting Choose sides – or target with separate teams, the better to speak the customer’s language and evaluate investments in relevant technologies (such as Savvis’ CDN sale and Level3 and InterNAP’s CDN buys). Enterprise Outsourcing High Volume Multi Tenant Web Apps (SaaS, Web 2.0, Video, etc) VS .
Dedicated Servers Resellers Who Do Shared Hosting Developers Who Need Complex Hosting Diversify  AWAY  from shared hosting resellers! The average shared plan now offers as much bandwidth/storage as the average dedicated server package. Can rampant overselling be sustainable? If functional hosting is eroding the shared hosting market, why not reach out to companies that develop those services?  But first, update your infrastructure to support  beyond-the-box  and  virtualization  options.
Developer Hosting Buy Banner Space on Developer Resource Sites BE  a Developer Resource Site Hosting 1.0 Hosting 2.0 ,[object Object],[object Object],[object Object]
Ecommerce Hosting 35% More than a third of Amazon’s sales reportedly come from auto-recommendations. If you implemented auto-recommendation across multiple customers’ online stores, could you boost aggregate sales by 35%? (The technology is available from Aggregate Knowledge on a pay-for-performance basis.) Web host as ad network – could it be the future?
Consumer Hosting Time’s 2006 Person of the Year was “YOU”. You as in the consumers – not the GoDaddy Girl, not the Dotster Dots, not Glob@t’s sex-taping pitch man or CI Host’s human forehead billboard. Web hosting is about putting YOU in the spotlight. Give YOU fame, and get ready for YouTube/MySpace-like traffic.
Also, Bundle Up ~10 % $332 $1.80 million Commissions earned by RyanAir for 3 rd  party products and services  sold on its website % of such ancillary revenues relative to annual sales Revenue per website visitor (even those who don’t make a purchase!) Can domain names be sold with t-shirts? Dedicated servers with Linux books? Your CFO might give you a bigger marketing budget if all that traffic you buy earns back $1.80 per visitor!
Questions? Email:  [email_address] Skype:  isabelwangdc Daily Updates:   http://www.thewhir.com/blogs/isabel-wang

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2007 Web Hosting Outlook

  • 1. 2007 Web Hosting Industry Outlook Fun Facts & Alarming Stats Game Changers & Likely Winners All that and more in 36 seconds!
  • 2. *Your results may vary Analysts Are Optimistic* CAGR through 2010, according to Gartner 2007 growth, according to Tier 1 Research 15 % 10+ % 16 % CAGR through 2010, according to IDC
  • 3. But Mindshare Declines Sri Lanka/Nigeria/Indonesia generate most searches Search volume for “web hosting” on Google
  • 4. 2006 Saw Capital Influx Plus, Demand Media comes into market with $220M Acquires EV1 and The Planet as part of $2 billion Fund I. Says is open to additional deals. Backs shared hosting rollup led by Endurance International . 27 deals btwn 2002 and mid-2006. No plans to stop. Backs web hosting veteran Gabriel Murphy’s acquisition of Aplus.Net . Says is still shopping.
  • 5. And Aggressive Marketing Let’s hope they don’t have very much churn… “ In recent months a growing number of hosting companies have begun paying $100 or more per referral for customers who typically pay $5 to $15 per month... There are people who will pay 2 to 2.5 years of revenue for a customer.” [Rich Miller, Netcraft] 2.5x (?!)
  • 6. But Ad Exposure is Transient A big splash doesn’t guarantee lasting impact Super Bowl GoDaddy website visitors, Nov 2005 – Nov 2006 source: compete.com
  • 7. And You Can’t Count on SEO Don’t you hate it when that happens? “ yeah, well we came 3rd for &quot;cheap web hosting&quot; 3 or 4 months ago but we've dropped now”
  • 8. Most Importantly… Not all traffic has equal potential Commercial intent of average website visitor, as rated by Microsoft adCenter Labs: 0.92 CDW.com 0.89 Target.com 0.76 Walmart.com 0.63 Amazon.com 0.62 Bestbuy.com 0.48 Hostway.com 0.47 GoDaddy.com 0.28 BlueHost.com 0.20 HostMySite.com 0.03 Aplus.Net Ready to buy (>0.5) Just looking (<0.5)
  • 9. You Can’t Out-Google Google Coming soon, “Want Web Hosting? Try Google Apps!” Google: uses free search traffic to promote free products – and earns $0.20 per search even when visitors don’t sign up. You: buy traffic to convince visitors to pay for products. BlueHost says up to 20% of purchased clicks may be fraudulent.
  • 10. Or Get Cheaper Than Free “ The six pillars of Wikia’s OpenServing offering are: Wikia is also launching a search engine, BTW FREE … and GIVING AWAY 100% of the ad inventory and revenue to website owners!” Software Bandwidth Storage Computing power Content over the Internet [Jimmy Wales, Wikipedia Founder]
  • 11. The WalMartized Web “ There’s a world market for 5 Big Computers” Building one stop shops for web presence (includes websites, map pop-ups, local directory listings and more!), back office apps and marketing. Targets developers with similar approach. Web services stack includes S3/EC2 as well as Mechanical Turk, Amazon Ecommerce Service and Alexa data. “ iTunes like” SaaS store to go live in 2007. Will act as outsourced sales, marketing and billing provider for small software vendors. Is hosting next??
  • 12. Who’s Got the Power? Can you match their cost structure? IDC: Share of today’s data center operating costs taken up by power 15-20% 50% Gartner: Share of IT budgets taken up by energy spending within a few years. No wonder Google, Microsoft and others are chasing utility bargains in the Pacific Northwest…
  • 13. Going out of Fashion Standalone servers are becoming passé $15 $0.10 per month per hour CacheFly’s CDN Amazon EC2 Startup CDNs take aim at traditional hosting providers. CacheFly asks customers to “stop hosting, start delivering” . Your response? In addition to Amazon, DataReturn, LayeredTech, Media Temple, Mosso and ServePath offer beyond-the-box hosting on grids & clusters. What’s your move?
  • 14. Virtualize, or Else VE logistics may be the industry’s #1 challenge Do your provisioning, ticketing and software licensing systems handle multiple VEs per physical server? What about multiple virtualization platforms? Feb 28 RHEL5 + Xen Late 2007 MSFT Longhorn Server + Viridian
  • 15. More! Bigger! Faster! Cisco CEO: traffic to reach 15 million TB/month by 2015 10 2x Equinix says demand for 10 GigE ports far exceeds expectations. The Planet’s 100Gpbs network upgrade will accommodate just 10 such super high traffic customers. Tier 1 Research says Internet traffic will continue doubling each year. Sooner or later, bandwidth overage will sink oversold resellers.
  • 16. Which Uses More Resources? Time to reevaluate the shared hosting business model? 30 million separate instances of Coppermine? 30 million user accounts on Photobucket? VS . Multi-tenant SaaS offers greater efficiency AND ease of use compared with single-user apps. Plus, free functional hosting continues to erode shared hosting market. As an example, Windows Live Spaces signed up 1.3 million users in August alone.
  • 17. 2007 : Likely Winners In no particular order
  • 18. Savvis Seizes Opportunity SVVS (NASDAQ): +24.46 (217.42%) in 2006 “ SAVVIS is focused on delivering IT infrastructure as a service. Our new data centers will provide customers with our industry-leading virtualized utility services.” [Phil Koen, CEO] 90% 50% 96% Estimated share of web servers that are maintained by in-house IT Corporate data centers that will max out power capacity by 2008 (Gartner) Respondents to Enterprise Management Associates survey who plan to virtualize some IT infrastructure
  • 19. SWSoft’s Hosting Equation The question is, which market are YOU targeting? 10% operations 20% service & support 20% enabling technology “ Half of hosting success comes from marketing.” [Serguei Beloussov, CEO] 50% marketing
  • 20. Fanatical Support Rocks Rackspace signed up 1100+ new customers during Q2 Customer Anxiety “ With Rackspace, hosting isn’t even one of my top 20 worries.” [Jason Lemkin, EchoSign.com CEO and happy customer]
  • 21. Bring in the Geek Squad Are unmanaged hosting providers missing out? Oct 2002: Best Buy acquires Geek Squad, a startup with $3 million annual revenue and 50 employees FY 2007: Geek Squad to reach $1 billion in sales and $280 million in operating profits
  • 22. Score One for Eco-Hosting Maybe there is a market for green business… “ My client is very anti-direct mail because of the environmental havoc it causes. Following your article they are likely to host their game (and some of their other apps) with Rackspace to make it carbon neutral.” [UK PR Agency] auto insurance + carbon offset = Ecoinsurance.co.uk electricity + CO2 neutrality = PG&E web hosting + tree planting = Rackspace UK
  • 23. Right Place, Right Time Location, location, location 132 $8.2 billion million Number of Chinese Internet users as of Dec 2006, a 30% increase since last year. Total Internet population in Asia is 387 million, versus approx 1 billion worldwide. DataPipe Hong Kong is in the right spot! VC investments received by Chinese Internet companies between early 2005 and mid 2006. More than 70 US VC firms have earmarked funds for China. “Chinese Myspace” 51.com reportedly spends $250K/month on new servers.
  • 24. Web Hosting? Try Web OS! Bill replaced managed backup at Rackspace with S3 “ We’re always looking for ways to build new stuff faster by leveraging reusable components , whether that’s software we’ve written or open source software. In some cases this will mean building on top of services hosted by other companies , such as Amazon . “ [Bill Boebel, CTO, Webmail.us]
  • 25. Speaking of Reusable… What are you doing to accelerate innovation? Share Videos Share Photos Share AMIs Amazon Machine Images are used to instantiate virtual servers on the EC2 utility computing service. These packaged environments can contain operating systems, app/DB/web servers or entire applications. EC2 developers can rate, share, reuse and build upon each other’s machine images. According to Amazon , “the more AMIs are shared, the faster the community can innovate”.
  • 26. Do Mess with Texas Guess what? It’s your customers they’re talking to! 15 16 10+ During Q4, 2006, Amazon Evangelists met with 15 developer groups in Winnipeg, Victoria, Silicon Valley, Chicago, Washington, DC and Fort Lauderdale, among other cities. Between Jan 15 and Feb 27, Amazon Evangelists will present to 16 groups in Boston, Redmond, Vancouver, LA, NYC, Phoenix, Miami, London and Dallas, among other cities. “ I know of more than 10 startups in Dallas that are using Amazon’s services as a way to start… This is big!” [Alexander Muse, Texas Startup Blog]
  • 27. Meet Richard Rosenblatt Demand Media is aiming for 2008 market cap of $2B iMall MySpace Demand Media $565 million $650 million $500* million *Current valuation “ What if we added some user publishing tools [to unused domains] so that people would come back? What if we built a platform where we could snap that into as many domains as we wanted? We'd have a company that generates its own traffic and its own content - and monetizes itself. ” Sold to Excite@Home Sold to News Corp
  • 28. Desire for fame = more 2 host Says Andy Schroepfer, Tier 1 Research VS . Would web hosting prospects rather make stars of themselves, their families, their companies and their products on ChannelMe.TV ? Or buy good old bandwidth + disk space from the GoDaddy girl?
  • 29.
  • 30. Managed Hosting Choose sides – or target with separate teams, the better to speak the customer’s language and evaluate investments in relevant technologies (such as Savvis’ CDN sale and Level3 and InterNAP’s CDN buys). Enterprise Outsourcing High Volume Multi Tenant Web Apps (SaaS, Web 2.0, Video, etc) VS .
  • 31. Dedicated Servers Resellers Who Do Shared Hosting Developers Who Need Complex Hosting Diversify AWAY from shared hosting resellers! The average shared plan now offers as much bandwidth/storage as the average dedicated server package. Can rampant overselling be sustainable? If functional hosting is eroding the shared hosting market, why not reach out to companies that develop those services? But first, update your infrastructure to support beyond-the-box and virtualization options.
  • 32.
  • 33. Ecommerce Hosting 35% More than a third of Amazon’s sales reportedly come from auto-recommendations. If you implemented auto-recommendation across multiple customers’ online stores, could you boost aggregate sales by 35%? (The technology is available from Aggregate Knowledge on a pay-for-performance basis.) Web host as ad network – could it be the future?
  • 34. Consumer Hosting Time’s 2006 Person of the Year was “YOU”. You as in the consumers – not the GoDaddy Girl, not the Dotster Dots, not Glob@t’s sex-taping pitch man or CI Host’s human forehead billboard. Web hosting is about putting YOU in the spotlight. Give YOU fame, and get ready for YouTube/MySpace-like traffic.
  • 35. Also, Bundle Up ~10 % $332 $1.80 million Commissions earned by RyanAir for 3 rd party products and services sold on its website % of such ancillary revenues relative to annual sales Revenue per website visitor (even those who don’t make a purchase!) Can domain names be sold with t-shirts? Dedicated servers with Linux books? Your CFO might give you a bigger marketing budget if all that traffic you buy earns back $1.80 per visitor!
  • 36. Questions? Email: [email_address] Skype: isabelwangdc Daily Updates: http://www.thewhir.com/blogs/isabel-wang