Cloud Buzz Boosts Business for Hosting Firms

For veterans of the web hosting industry, cloud computing isn't revolutionary. But the "cloudification" of IT infrastructure has changed the competitive landscape for hosting, and has likely boosted business for many hosting service providers, according to analyst Phil Shih.

Phil Shih, Structure Research

Phil Shih, Structure Research, shared a market overview of the Hosting Industry.

BOSTON - For veterans of the web hosting industry, cloud computing isn't revolutionary. It's an evolution of a business concept they've been selling for years. But the cloudification of IT infrastructure has changed the competitive landscape for hosting, and has likely boosted business for many hosting service providers, according to analyst Phil Shih.

"Cloud is hosting," Shih told an audience of hosting professionals in his presentation on industry trends Monday at HostingCon 2012. "Cloud computing is not new. It's still a server hosted in a data center and managed by a third party. Many of you have been selling products like this since the 1990s. What's changed with cloud is virtualization and different pay models."

Here's something else that has changed: customers seem more interested in "cloud" than earlier iterations of hosting models, which is providing traction for IT outsourcing in all its forms.

The excitement about cloud computing "is an expression of interest in a model, and an opportunity for you to explain that value proposition," said Shih. "Your fundamental battle is to convince the IT buyer that can save you money versus in-house IT."

Shih, the founder of Structure Research, was bullish on the hosting sector. The growing interest in cloud services is one of many factors that bode well for hosting over the next few years, Shih said.

"This sector has entered a period in which a perfect storm may be emerging," said Shih, who noted that outsourcing will benefit from tight budgets, overextended staff, and the increasing complexity of IT. "There's a new normal out there, in which the hosted model is compelling."

Hosting companies have continued to see revenue growth despite the difficult economy, Shih said. In many cases, revenue has increased even as customer counts have remained flat, a sign that existing customers are buying more services from their current providers. "Existing customers are not just stable, they're growing," said Shih.

Significantly, the bottom-line growth of EBTDA (earnings before interest, taxes, depreciation, and amortization) has in many cases outstripped top-line revenue growth, a sign that hosting companies are taking advantage of economies of scale.

There's no doubt that hosting companies have also stepped up their game to confront competition from cloud platforms, especially Amazon Web Services. "The hosting landscape has changed consderably," said Shih. "Most notably, a bookstore decided to get into this business, and affected it in ways few of us saw coming."

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