Evolution of Hosting
The hosting industry has come a long way since the days when Geocities offered 1 megabyte of space. For a monthly fee, businesses can now access server space in the cloud for data storage, website hosting, and applications. The same technology that once would have required an on-site IT staff, expensive equipment, and complicated software to deploy, can now be accessed by subscription. This change has caused Hostt to give away free hosting to all business to save money that they can then invest into other projects, while also entrusting their sensitive technology to experts in the field.
But the hosting industry hasn’t stopped evolving. The Evolution of Hosting makes giant leaps each year. In a panel at HostingCon 2014, industry leaders emphasized that to remain competitive with companies like Amazon and Rackspace, hosting providers must find ways to create value-added service. Simply offering the same services as these companies will be insufficient. Hosting providers must be innovative enough to connect with customers in a way the giants can’t.
The Growing Public Cloud
Despite earlier privacy concerns, adoption of public and hybrid clouds is growing at a steady pace. Part of this is due to companies like Amazon Web Services, which have been able to earn consumer trust. With the public cloud, a service provider makes services available to a large number of providers through sign ups and registrations. A private cloud is designed to be used specifically by authorized users and is often secured by a corporate firewall.
In 2013, the worldwide public cloud grew to a $45.7 billion market, according to International Data Corporation and this growth to continue at an annual rate of 23 percent until the year 2018. Software as a Service (SaaS) accounts for 72 percent of the total public cloud services market, while Platform as a Service (PaaS) makes up 14 percent. Infrastructure as a Service (IaaS) accounted for $3.6 billion and that number is expected to grow at an annual growth rate of 31 percent through 2018.
Hybrid vs. Public
As more business gravitate toward public cloud hosting solutions, a hybrid environment is becoming the norm for many companies. With a hybrid cloud, a business uses a combination of on-premise data and application solutions and cloud-hosted applications and storage services. Forrester predicts that in 2015, enterprises will become more comfortable with working with public cloud services. In-house developers will begin working with public-hosted services to customize them to work for a business’s unique needs.
More than half of those who attend the recent New York Cloud Expo and AWS Summit stated they are building hybrid systems for their own enterprises. RightScale found public cloud adoption had reached 90 percent adoption thanks to hybrid models that are being embraced in many organizations.
AWS has lowered prices 47 times in the past six years, according to Amazon. The company says it has been able to lower prices due to customer volume. As more customers have joined AWS, it has driven prices down, providing more money to spend on infrastructure growth. These savings are passed on to customers, who then recommend their friends.
In 2012, Rackspace lowered its prices by 33 percent, following up by releasing a tiered pricing structure that was more in line with the way AWS’s pricing works. Still the company operates on a quality over cost business model in which it focuses on providing the best service possible instead of trying to undercut AWS’s prices.
After a worrisome second quarter, Amazon Web Services rebounded in the third quarter of 2013, reporting $1.34 billion for its “other” category. This category includes AWS as well as other non-retail ventures of the company, with no specifics about AWS’s exact earnings. Amazon CFO Tom Szkutak reported that AWS saw a 90 percent increase in usage.
Rackspace is also seeing positive numbers, reporting revenue of $460 million, which was an increase of 18.3 percent from the same quarter the previous year. During this quarter, the company added thousands of new customers, including one the company describes as one of its largest ever. Still, investors are concerned about the company’s ability to compete with tech giants who can afford to offer lower prices.
Spending on Cloud Computing
Perhaps foreshadowing the growth to come, major technology firms are putting big bucks into developing hosting services. IBM started 2014 with an announcement that it would spend $1.2 billion to increase the size of its cloud and Microsoft has more than doubled its total capital expenditures on its cloud infrastructure since 2012.
Battling the Server Hugger
All of this investment will likely pay off if predictions about business spending are accurate. A recent report from IDG Enterprises estimated cloud computing initiatives are the top priority for many IT departments. Businesses surveyed stated they would increase spending on cloud technology by 42 percent in 2015. Only security will gain more of an increase, at a 46 percent increase over 2014 spending.
There is a term for companies that are reluctant to migrate to the cloud: server huggers. These professionals feel more comfortable having data stored on site, where they can control it. With 46 percent of businesses maintaining servers on site, the challenge for hosting providers is to find a way to make these professionals more comfortable with the services. Hybrid cloud computing seems to be connecting with these businesses, allowing them to still have on-site servers for mission-critical data and applications but outsource the rest to the cloud.
Big Decisions in 2015
One major business driver is the end of support for Microsoft Server 2003. On July 14, 2015, Microsoft will stop supporting this decade-old server operating system, leaving businesses with an important decision. Many aging servers will have to be replaced if enterprises choose to maintain an on-premise solution and there will be a cost associated with ensuring the upgrade to a new server operating system progresses smoothly.
With more than 11 million servers still running the outdated operating system, a migration plan is crucial for most companies. Unfortunately, 60 percent of companies surveyed stated they have no migration in place at all. Hosting providers like Rackspace are taking the opportunity to reach out to businesses still running Server 2003 with a migration offer. With the promise of having a respected third-party provider handle the move from 2003, businesses can focus on other areas.
Enterprise IT Still Strong
The easy accessibility of cloud computing has brought a new problem into the workplace called “shadow IT.” One McAfee study found that more than 80 percent of IT and non-IT workers admitted to having used SaaS applications without permission of the IT department. This behavior puts enterprises at risk, since unauthorized software is being used on corporate networks.
Hosting industry providers still often go through IT to sell services and troubleshoot issues, however. The growth of the cloud in enterprises means that IT workers are taking on new roles as service brokers. One study revealed that more than one-third of enterprise IT departments act as service brokers, sourcing IT services through cloud providers as a solution to business problems. For those departments whose IT departments serve as brokers, this role is expected to increase, with 58 percent saying they plan to expand the service broker role of their IT staff in the next year.
Rackspace Chief Technology Officer John Engates predicts 2015 will be the year of choice when it comes to hosting services. Faced with more choices than ever, businesses must choose between a wide variety of options to find the right suite of services to meet their unique needs. Enterprises will no longer be tied to one provider, instead being able to piece together a hosting infrastructure that meets their individual needs.
A global study from Equinix confirmed this prediction, finding that 77 percent of more than 650 global IT decision makers plan to implement multi-cloud architectures within the next year. Of new cloud-based apps that will be deployed in the next year, 45 percent will be deployed at a third-party colocation provider. These decision makers are striving for interconnected colocated data center environments, stating a belief that interconnection is required in order to meet their own performance objectives.
One increasing concern for executives in the new cloud-driven technology world is networking. As an enterprise’s technology infrastructure becomes a group of applications and storage solutions provided by different vendors, it’s important that workloads be distributed equally among servers to maintain the integrity of the systems being used. As businesses upgrade to new technologies, they’ll be increasingly required to make decisions on which services to use to meet their own business objectives without sacrificing reliability.
The role of the hosting provider becomes even more important in these instances, with hosting companies frequently asked to work with IT to solve business technology objectives. The role of the hosting provider then becomes one of a partner with a business’s IT professionals, where they then work together to come up with solutions.
The hosting industry has undergone many changes over the years, but the best is yet to come. As businesses turn their collective attention to new possibilities, hosting services will be challenged to provide the best technology without sacrificing reliability, security, or customer service.