Are you ready for Hosting 3.0?


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The second phase in hosting was exemplified by a shift to a broader set of services in the mass-market, driven by virtualization and automation... the foundation for what will become hosting 3.0, or the next phase in cloud computing. However, the hosting market is simultaneously splintering between public, private and enterprise cloud solutions, creating larger challenges for hosting providers to facilitate to these disparate needs. This brings with it a decision point for hosters: what is needed to adequately compete? How to create cost effective yet resilient and secure infrastructure solutions? Where to invest, who to acquire or how to be acquired? Join Antonio as he describes the State of the hosting industry, the simultaneous looming threats and opportunities that Cloud computing brings to the hosting market, and how to deal with them.

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  • Facebook: It claimed the second spot in May by notching up 26.8 million visitors, compares with Microsoft's 26.2 million users (Google had 33.9 million)) who accessed Redmond's online estate of MSN, Windows Live and Bing last month. UKOM/Nielsen said that there had been a steady growth of older people using Facebook since 2009, with an 84 per cent increase of 50 to 64 year-olds and an 81 per cent increase in over-65s.  An Essex-based security firm has offered to “house-sit”   Facebook and  Twitter  pages, to prevent burglars becoming aware that its clients’ houses might be vacant. The social networking site saw its British users reach 6.1m in May according to a poll by UKOM/Nielsen as allegations regarding Ryan Giggs and others surfaced 2) IOC is out to protect its own reputation and the 'image rights' of commercial sponsors. Bankrate, Inc. and its subsidiaries own and operate an Internet-based consumer banking and personal Chinese social networking site  Renren , which priced at $14 on May, is showing signs of life after a steep fall; the stock today is up 41 cents, or 6.6%, to $6.64
  • Everybody has an idea of the basics of hosting servers, even partitioned ones, with a highly volume based, server-oriented, revenue model. Phase two was characterized by the shift to more of a services focus in the mass-market, by means of  virtualization and automation deployment.  Phase 3 in hosting is represented by a higher layer of web services that are more resilient and secure than previous generation, and with a greater toolset and ecosystem, to appeal to a broader audience of business-class users
  • The reason behind the need for the third phase in hosting is to keep up with the changing demands in the business place.
  • Before we get ahead of ourselves, it’s prudent to step back and take a look at what has changed in the market..
  • Breaking this down by company size – the gap is biggest between 1-10 employees (13% gap), then down to 4% from 11-100 employees and opens up again above 1000 employees. 40% are from 1-100 20% from 100-1000 40% above 1000 employees (which all represents how businesses are split up in the US).
  • Moody's and Standard & Poor's have threatened to lower the United States' AAA credit rating because of Washington's inability to legislate an effective debt reduction package. Wide differences continue to remain between the two political parties on how to resolve the debt reduction issue.   Thinking about your company's overall capital budget for 3rd Quarter 2011, has the debt reduction impasse and continuing controversy caused your company to make any adjustments to their capital budget over the past 90 days? When we asked corporate respondents whether the debt reduction impasse had caused their company to make adjustments to their capital budget, 16% reported their 3rd Quarter cap budget had Adjusted Lower over the past 90 days because of this issue.   Only 1% said their cap budget had adjusted higher.   It should be noted that two-thirds (69%) said the debt reduction impasse has had No Impact on their 3rd Quarter cap budget and another 14% said they Don’t Know . But when 16% of companies say they are adjusting their capital spending budgets lower because of an issue it means that it is having a serious impact – especially in the midst of a tenuous post-recession recovery.   Of course, there are other contributing factors to the slowdown in capital spending. For example, as mentioned earlier there was a significant increase in the percentage reporting a general slowdown in business conditions as one factor in their company’s software spending decisions.   But the ChangeWave survey results clearly show the debt reduction impasse and continuing controversy in Washington – in and of itself – is contributing to the U.S. economic slowdown. The issue is no longer simply what might possibly happen August 2nd; rather the survey findings show that damage to the U.S. economy has already occurred.
  • The point is that there is an expectation of consuming everythign when you’ re not at work is now being relayed to the business sector. It is not about automation – the poitn is around consuming things has changed. Consumerization fo IT is the single most important device – to ensure they are succesufl. Comsumers enjoy better IT than they do at work. I can then tee up the panel about CIOs exaclty how they have done this in their own worlds. We regard the consumerization of enterprise IT as the most important device organizations now have for delivering IT successfully – i.e. that it’s accepted and used. The trouble is that today, consumers enjoy better IT than they do at work. This has to change.
  • Despite the doom and gloom of the economy, there has consistenly been a desire over the past 5 quarters to use cloud computing.
  • SMB’s largely see cloud computing as decreasing capital spending on other IT assets
  • 06/17/09 But as people move to cloud computing platforms – where are they going? Not volume of hits – but volume of these web sites.
  • Most of you hosters play in this IaaS world. The pie is still big enoguh, but are there other opportunities?
  • Hosters need to thing about the larger SaaS opportunity, either directly or in partnership with others. Similarly when asking about the spending going forward, SMBs show the same patterns.
  • IaaS revenue has been growing >100% per year – to slow to 60%
  • Just to keep cloud computing in the context of hosting and colo services- traditional hosting is still a great piece of the pie, but growing in single digits compared to double digit cloud computing growth.
  • Getting back to SMB’s it is clear they want ot spend on cloud computing and not software apps – even if the servers are rented in a hosting environment. Hence we see more and more saas requirement.
  • Everything else is roughly equal, but there is a significant upswing in CRM softwareand SaaS purchases, and a downward swing in ERP software purchasing with 15% of business wanting to spnd less of ERP software and 8% say more. Putting These Findings in Context. As the following chart shows, the percentage saying they’ll spend less on business software (especially CRM) going forward is greater than the percentage projecting more spending. The trend in CRM has been for the last 18 motnsh with more companies chosing to send more (14% oin our last survey) vs those wanting to spend less (9%).
  • “ Facebook’s150,000 square foot datacenter opened in Oregon… with another150,000 square foot facility to foll ow (April 2011) “ Google’s vision for 111 8th Ave acquisition includes colo providers and network carriers” (December 2010) Less asian centiricity. Amazon has reduced pricing for e-commerce hosting (by 60%) and add new services The Danger of IaaS commoditization Can you Play the Price game? Is your cloud platform over or under-subscribed? Dangers to both Amazon offers per hour and pre-booked instances lower than dedicated servers Can You compete? Los of other new entrants, can you afford to play at the price level? Rax has gross margins of over 28% and Net margins of 7% - that is razor thin?! Under-subscribed: Cloud platforms are not yet utilized on a full scale basis so your economics don’t work properly. If you’re oversubscribed – it’s like the airlines (as our friends from Enki said) – you start to run into problems. Microsoft BPOS price reduction Azure launch Partnership with Intel Google Wave launch Apps getting more channel friendly Intent to build app marketing place Amazon Private Cloud service Reserve instance pricing on EC2 Overall price drop Apple MobileMe quietly gaining share App Store drives mobile Cloud adoption Partnership is key Aside from ongoing R&D investment in China, Microsoft has made measurable headway in a number of ASEAN (the Association of South East Asian Nations) countries. In April, Microsoft struck two major partnerships in Thailand and the Philippines, respectively. The partnership with Bangkok-based True Corporation , the fast-growing integrated communications service provider, to extend technology and cloud services to the local businesses is an important step for Microsoft in exerting its market influence in Thailand. Accordingly, the partnership is far more than a simple distribution agreement. Under the partnership agreement, Microsoft and True Corporation will jointly contribute to the design, development, delivery and marketing of new cloud services (provided by Microsoft) and convergent services (provided by True Corporation) and bring these services to the market using both wireline and wireless access. For True Corporation, the availability of a broad portfolio of cloud-based productivity and collaboration services is strategically important to support the diverse needs of business corporations. By partnering with Philippine Long Distance Telephone Company (PLDT), the Philippine telecom behemoth, Microsoft could gain immediate access to local businesses for its cloud-based services. In this partnership, PLDT also teamed up with Datacraft , a subsidiary of Dimension Data (which was acquired by NTT in September 2010) to provide the necessary cloud architecture and support to cloud service customers. Just like existing SaaS pricing models, the cloud-based Microsoft services will be charged for using a monthly subscription model. PLDT is confident that the partnerships with Microsoft and Datacraft will help strengthen its leadership in technological advancement in the Philippines. Perhaps more importantly, it will expand its cloud offerings by adding new services to its current cloud portfolio, called AppFarm. As part of the AppFarm portfolio, PLDT provides a number of enterprise-oriented SaaS applications, including document management and managed Web security. AppFarm is targeted at PLDT's broadband and private network customers and is offered as service bundle with broadband and private network services on a subscription basis. Cloud computing advances ICT development in developing Asia Spearheaded by the Philippine government efforts, the country continues to transform itself into a knowledge-based economy with a strong focus on information and communication technologies (ICT) development. As expected, the government is the single biggest ICT user in the country through implementing a number of e-government projects. Also, it has played a key role in driving the involvement of private sectors amid the ICT transformation, promoting public-private partnerships and collaborative programs in areas of ICT workforce enablement and outsourcing capabilities. That being said, cloud computing deployment within the public sector has been slow and the practice of local government autonomy backed by the local government code has complicated the management of resources among government units. Thus, we expect the bulk of cloud computing activities will be coming from the private sector, led by a number of influential players such as PLDT and Globe Telecom to mobilize the ICT development in the local market. Thailand has implemented a number of nationwide ICT projects such as SchoolNet and eCities to strengthen its ICT position in Southeast Asia. As awareness of cloud computing is growing in Asia, the Ministry of Industry (MOI) in Thailand decided to play a more proactive role in promoting cloud computing usage. Through a national program called Enhancing SMEs' Competitiveness through IT (ECIT), MOI will provide annual funding of 40 million baht (approximately $1.3 million) for the deployment of cloud computing services in the SMB market. This clearly presents opportunities to a mix of national operators and private operators. True Corporation is just one of many providers interested in tapping into the cloud. More providers are expected to jump onto the cloud computing bandwagon in the foreseeable future.
  • I get this question a lot – and we finally have some answers. Granted this is biased by the fact that around 10% of businesses have a bias in that they have no intention of using cloud computing.
  • A lot more spread out, and a much low mean that reliability. But this is something that hosting providers should nt veer away from. The Security poverty line is seomthing that hosters can help bridge since they have specialists on hand to monitor and manage (keping patches updated for example) that small and medium sized businesses often don’ t retain these specialists oin house. Culture/learning change Cost un-sureity Security and assurance Interoperability/Integration Regulatory/compliance Also: Executive Sponsorship and Readiness
  • Mix of Cloud, Datacenter, Remote office, and Virtualized Environment Lots of moving parts and pieces Lack of clarity into where a problem truly resides
  • Assurance from migration through test and dev to full production maintenance
  • Change shape = become a niche vertical or saas player Microsoft doing hosted exchange is a prime example of how the industry of hosters cumulatively can make a difference in the directont that this cloud computing phenomon takes. If nobody resells their ghosted servcies, the company will be forced to go direct to protect itself from google and etc. Hosters need to start realziing that it may not make snse to own all the moving parts, and to start diversifying the products and servcie sold for the salke of top line reveneu and margins.
  • Ensuring the SLAs through monitoring and managemenet systems Ensuring the automation orchestration of your network
  • Total debt raised in 2010 was 16.3% higher than 2009. What does this mean? Growth lags debt raised by 6-12 months – 2011 and 2012 will continue to show healthy growth
  • Meaning Open and Interoperable models are important. Mobile sector is a big oportunity. Go out with a lto more energy and bang. We need to hand off very strongly. Last slide needs to be more update. Novell, Onapp come next. Even thoguh our estimation of the market is small for cloud – but people are movign ti full prodcution in the cloud,a nd the maekup of the audience is changing, and why we are all here. The bigger wave is still coming – of opportunity. Can you get this done in a half an hour. Need a big bang closer. Have to lose a few slides. Just 3 key take hom poitns from this: 1) partnerhsips key; 2) enteprrises are moving full production to the cloud. 3) x? yes - to the cross selling piint — pLEASE deliberately make a Security Call Out in your final slide
  • Savvis to Centurylink
  • Complexity Axis: Reflects the amount of customization required, interoperability requirements, amount of industry specific data Cloud Value Axis: Reflects the attractiveness of the cloud model in relation to the workload (i.e. distributed access, Opex vs. Capex, Privacy Orange = ERP Green = Supply Chain Planning Blue = CRM Purple = Workforce or CCC
  • i.e. loosely coupled networkign if customer wants it, or apps and etc. Hosted voice/collaboration is huge.
  • 06/17/09
  • Are you ready for Hosting 3.0?

    1. 1. Antonio Piraino Vice President, Tier1Research Are you ready for Hosting 3.0?
    2. 2. Tech Bubble 2.0? <ul><li>“ Facebook reached 750m users; 7 billion pieces of content shared on the site weekly </li></ul><ul><li>Facebook was linked to over 100,000 crimes in the UK </li></ul><ul><li>“ Apple’s15bn app store downloads is growing 9 times faster than Macdonald’s” (A.Love) </li></ul><ul><li>Apple Embroiled in Patent violations with HTC and Samsung </li></ul><ul><li>“ Google Android 550,000 a day, 160m Chrome users, $37bn cash, $200bn market cap” </li></ul><ul><li>FTC/EU is investigating Google for possible antitrust violations </li></ul><ul><li>Google retiring Google Health online personal health records </li></ul><ul><li>“ Twitter's July membership increased 50,000 per day with 95 million tweets a day” </li></ul><ul><li>IOC warns athletes out of the London Olympics if they over-step Twitter and Facebook </li></ul><ul><li>“ LinkedIn added up to $102/share with $470m revenue and over 100m users ” </li></ul><ul><li>Competition with Zynga, and being sunk by Spam </li></ul><ul><li>Facebook, Groupon, Zynga, LivingSocial, Twitter, LinkedIn, Pandora ($3bMarket Cap = 16x Revenue), Zillow: $3.5 billion revenue; $200bn Market Cap.  </li></ul><ul><li>Demand Media Enterprise Value/EBIDTA: 18-19x ($1bn Market Cap) </li></ul><ul><li>Copyright/Trademark infringement issues detracted from market cap <$1bn </li></ul><ul><li>Do Not Confuse with Cloud 2.0 or Hosting 3.0! </li></ul>
    3. 3. Hosting Evolution <ul><li>Phase 1 </li></ul><ul><li>Phase 2 </li></ul><ul><li>Phase 3 </li></ul>Courtesy of
    4. 4. Cloud Computing: Market Separation Public to Enterprise
    5. 5. Hosting 3.0 What Changed? Challenges Hosters will Face What can you do? Where to next? The Opportunity
    6. 6. Impact on SMB Budget
    7. 7. Economic Impact
    8. 8. What’s changed in the business Psyche? <ul><li>Consumerization of IT Era </li></ul>
    9. 9. Enterprise Capital Budgets
    10. 10. Hosting 3.0 What Changed? Challenges Hosters will face What Can you do? Where to next? The Opportunity
    11. 11. Enterprise Capital Budgets
    12. 12. The Distribution Shift Courtesy: Jack of all Clouds/Cloudkick Number of sites in samples
    13. 13. The IaaS Opportunity Cost Source: Tier1 Research/The 451 Group Revenue $USM IaaS Revenue Estimates CAGR 70%
    14. 14. Which format of Cloud?
    15. 15. Aggregate Cloud ‘As a Service’ Market CAGR ~25%
    16. 16. Growth in the Rest of the Market
    17. 17. Where will SMB Cloud spending go?
    18. 18. Top Apps driving cloud computing Cloud Computing: Top 5 Areas that Companies Currently Support Applications Running on Public Cloud Computing Services. Current Share - Jul 2011
    19. 19. Hosting 3.0 What Changed? Challenges Hosters will face What Can you do? Where to next? The Opportunity
    20. 20. Threats to your Hosting Business
    21. 21. Growing Competition <ul><li>“ Facebook began testing an API that lets corporate admins make changes to settings or install applications (July 2011) </li></ul><ul><li>“ Google launches new Page Speed Service (on top of SPDY): for Google Sites, Picassa, AppEngine, Apps” (July 2011) </li></ul><ul><li>“ Businesses with Microsoft Volume License can run existing Windows Server application licenses on Amazon EC2” (July 2011) </li></ul><ul><li>“ Apple has added volume purchasing to its App Store in a bid to entice the enterprise segment: B2B apps for $9.99.” (July ‘11) </li></ul><ul><li>“ Intuit and recently announced a deal to integrate QuickBooks with's CRM platform.” (April ‘11) </li></ul>
    22. 22. Impact of Cloud Outages
    23. 23. Perception wrt Reliability
    24. 24. Perception wrt Security
    25. 25. Compute model increasingly complex <ul><li>Means More work and complexity </li></ul><ul><li>Means more challenges in meeting SLAs </li></ul>
    26. 26. Hosting 3.0 What Changed? Challenges Hosters will face What Can you do? Where to next? The Opportunity
    27. 27. Options <ul><li>Virtualize & Automate </li></ul><ul><ul><li>Parallels, Citrix, VMware, HyperV, etc </li></ul></ul><ul><li>IaaS stack in a box (plumbing) </li></ul><ul><ul><li>, Onapp, Flexient, Eucalyptus, Canonical </li></ul></ul><ul><li>PaaS in a box </li></ul><ul><ul><li>Hexagrid, Joyent, Opsource, Morphlabs, Elasticstack </li></ul></ul><ul><li>Don’ t forget to focus on Management and Control </li></ul><ul><ul><li>Sciencelogic, Nimsoft (CA), BMC </li></ul></ul><ul><li>.. and on Security, reliability and assurances to Customers Means SLAs and more high touch involvement </li></ul><ul><li>Don’t get into the habit of price wars – you can’ t afford it! </li></ul>
    28. 28. Ultimately a decision needs to be made <ul><li>Partner, build, be acquired, change shape, compete ? </li></ul>
    29. 29. Management, Control & Transpaency Servers/Network/Storage Collaboration Voice / Video / Telepresence Cloud (Amazon, Rackspace, and more) Performance & Availability Ticketing Asset Eventing Storage Networks Operating Systems Servers Databases Video
    30. 30. Hosting 3.0 What Changed? Challenges Hosters will face What Can you do? Where to next? The Opportunity
    31. 31. The next phase of cloud computing
    32. 32. Venture Capital Expectations <ul><li>% of VCs who expect investments to increase in 2011 in companies related to: </li></ul>Source: National Venture Capital Association Survey, results Dec 2010
    33. 33. Cloud 2.0 <ul><li>More Consultative approach </li></ul><ul><li>SLAs driven by business needs </li></ul><ul><li>High Security (assurance, DR, compliance) </li></ul><ul><li>Granular Monitoring, Mngt & Reporting </li></ul><ul><li>Flexibility of Cost/Pricing and no lock-in </li></ul><ul><li>Consistency in Technology </li></ul><ul><li>Agility, scalability and elasticity </li></ul><ul><li>New management features and Tools </li></ul><ul><li>More Niche plays </li></ul><ul><li>More Consolidation </li></ul>
    34. 34. Framing the Consolidation Other (MSPs, VARs, Social media) Telecom Providers Hosting Providers ISVs Systems integrators Global Regional National
    35. 35. SaaS/Apps Marketplace Opportunity Cloud Value Complex Loosely Coupled CRM/SFA HCM CRM – Call Center SMB CRM/Marketing Automation EAM FMS Manufacturing And Operations Software SCP SCE-TMS Procurement* Web Conferencing E-Learning Team Collaboration Email SMB - ERP Time 2010 -2006 2011 -2012+ Test and Development
    36. 36. Practical Reflections for Service Providers <ul><li>Commit to a strategy </li></ul><ul><ul><li>Leveraging communities, IP software, opensource stacks </li></ul></ul><ul><li>Decide between IaaS, PaaS or SaaS </li></ul><ul><ul><li>Apps Exchange marketplaces & Mobile apps growing </li></ul></ul><ul><li>The biggest Competitor </li></ul><ul><ul><li>Other Provider, the internal IT guy or Cloud readiness? </li></ul></ul><ul><li>Offering Assurances </li></ul><ul><ul><li>Ease of migratability, integration, usability and tools </li></ul></ul><ul><li>Addressing the Security Poverty Line </li></ul><ul><li>Means more than just a pricing change </li></ul><ul><li>There is no magic Solution – partnerships are key! </li></ul><ul><li>Or Exit </li></ul>
    37. 37. Not a fad… This is Next-Gen Business
    38. 38. Questions? <ul><ul><li>Antonio Piraino </li></ul></ul><ul><ul><li>Vice President, Tier1 Research </li></ul></ul><ul><ul><li> </li></ul></ul>