As more businesses embrace online communications and digital media, there is a growing need for hosting and cloud services that not only deliver 24/7 support, but are able to respond immediately to rapid and unpredictable shifts in demand. The increased speeds and reach of federal government's NBN (National Broadband Network) is likely to drive this even further.
At the same time, falling CPU prices, along with improved tools for virtualisation, are leading to the commoditisation of hosting services - forcing providers to find creative points of differentiation.
There are over 1000 hosting companies in Australia, ranging from lone servers chugging away in suburban garages up to sophisticated, large-scale operators.
Glenn Gore, chief technology officer with Melbourne IT, says the last year has been especially exciting for the hosting market.
"The industry has been going through the most rapid change period it has ever seen," he says. "We are moving to an on-demand, pay-as-you go model, which represents a big cultural shift for a lot of sales teams; the customer is in control more than they've been."
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| Glenn Gore, CTO, Melbourne IT |
Shane Baker, general manager of sales and marketing at Hostworks, says that the 24/7 nature of the digital media industry in particular has been a major driver for the hosting market over the last few years.
"That's where we've seen massive change, in the evolution of how consumers are using digital content," he says. "We've got to be on our game every minute of every day. You can no longer just sit back and take a static approach."
Hosting company ICO, a subsidiary of distributor iTX, is working to develop what it describes as a ‘truly elastic' cloud model where resellers or end users are able to provision themselves.
"What you want in a real cloud environment is a portal where resellers or end users can dictate what they want," says general manager Adam Chicktong.
He says companies that don't move in the direction of self-provisioning will soon find they have little to offer clients.
"The Catch-22 for customers is that by taking on greater control themselves they have a higher level of accountability and responsibility," Gore says. At the same time companies are struggling to find the budget to pay dedicated staff.
This creates opportunities for resellers to provide additional physical or virtual hosting capacity, as well as consult to help companies improve their efficiency.
The increased commoditisation of IT resources drives the hosting market, by forcing providers to differentiate their services.
"In everything from the cost per CPU up to managed services, the price per unit has fallen dramatically, by as much as 50 percent," says Hostwork's Baker.
Melbourne IT's Gore says that as hosting companies have been forced to compete aggressively on price, the market is now at the point where there are gaping holes in terms of service levels.
"There are certain parts of the hosting market that have been commoditised very heavily - prices have gone down to extremely low levels," he says.
The downside is a lack of genuine SLAs, which often leads to technical unreliability and poor customer service.
"There's a lot of noise from people who say, ‘Hey I'm going to get into the hosting business'," Gore says. "But you need to ask yourself how you are solving a problem for a customer."
ICO technical director Greg Small says the company is currently eyeing what it sees as a gap in the mid-tier market. Small says there is growing demand for extremely high uptime and availability. "We can guarantee you won't go down more than 26 seconds in a month," he says.
Companies may value advanced security features for data but also on-premise security such as fire and water protection.
A provider's financial security will often be important, especially for companies contemplating long-term contract arrangements, while details about a provider's technology and expected investments could also influence decisions.
Next: Rising costs
Rising costs
One area which isn't getting any cheaper is the actual data centre, and the rising costs of cooling and electricity are expected to increase demand for collocation services over the next few years as more and more companies opt to have their servers looked after.
There is also a growing trend amongst technology suppliers, especially those catering to the smaller end of town, to bundle products with some sort of hosting.
This is increasingly common in the software industry, where clients who would otherwise forego a major upgrade due to the accompanying hardware expense will simply agree for their provider to take care of that end of the equation.
Sean Finn, director of Australian hosting reseller Oz Servers, reckons that any company that's gone to the simple effort of creating its own business website along with a few email addresses hasn't got all that far to go before becoming a reseller of host services themselves.
"The main benefit from hosting is that it's recurring income," he says. "The customer is giving you money every month. It's also fairly recession-proof; the margins can be spectacular."
Once a company has a few customers it might think about joining an affiliate program which delivers a kickback for signups, but with end users dealing directly with the host provider.
Finn says that affiliate programs, such as the one offered by WebAccess.com.au, will usually pay around 20 percent of all invoices generated for business referred, and will process payments quarterly regardless of volume.
"With an affiliate program most of the work is done for you, including support," he says.
After this it's worth considering signing up to a partner program to become a white-label reseller. In this scenario, companies will generally receive 20 percent for the first five, 30 percent for the first 10, or 40 percent for more than 10 hosting packages that are sent through, while the host provider takes care of all the technical operations.
The trade-off is that this requires the provider to create its own brand and deal with clients directly, while also taking care of their billing for them. Hosting packages generally range in price from $9 to $33 a month, meaning that five entry-level hosting packages will be about $45 retail, returning $9 every month.
Starting costs to have a dedicated hosting environment are about $55 per month for up to 30 domains, $110 for 100 domains and $200 a month for unlimited domains.
By the time you get up to a couple of hundred domains, the figures start to look rather attractive. For instance, you could be selling 200 domains at $10 each per month, all for the initial outlay of $200 a month for the server.
The next phase is to pay for your own dedicated server.
"You pick two Quad core servers capable of handling the job, and decide to start your own reseller and affiliate programs to new hosting providers."
But this is not a decision that should be taken lightly.
"Going it alone means running both the technical and customer side of hosting. It isn't for the faint hearted but provides much more financial incentive," Finn says.
He adds that virtual servers start at around $50 a month and are a great way for resellers to help clients gain fast and affordable access to additional resources as required.
Many hosting companies including Oz Servers sell virtual servers, often to smaller companies, while cloud services are often a more appropriate solution for larger scale enterprise tasks.
A number of hosting companies in Australia have deployed technology such as VMware or Microsoft's Hyper V to enable quick and easy provisioning of virtual hosting capacity for customers.
Cloud-based services have generated a great deal of excitement over the past few years, yet it's not clear to all how they differ from hosted services.
"The market generally doesn't know the difference," says Shane Muller, managing director of host provider OBT. But in a way this isn't all that important.
"People are not looking for how to get more infrastructure per se; the motivation is to do business better and easier with greater internal efficiencies."
"It's really about making the customer's business easier."
If there's one thing that sets cloud and hosting apart, the latter tends to imply a closer relationship with the customer. And for most customers, Muller says, this is more important than any of the other factors.
"The biggest hindrance and the biggest motivation for companies moving to a cloud or host platform is the relationship," Muller says. And the larger the company gets, the more it expects to rely on the channel to nurture and maintain these relationships.
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| Shane Muller, managing director, OBT |
Muller explains that until just a few years ago OBT only sold direct. Now resellers have come to represent the fastest growing segment of the business.
He notes that for any company that's thinking about becoming a reseller of hosting services, one of the first things they need to address is billing systems.
"As we work with more channel players we have also realised that many simply don't have the internal systems to bill for services.
"There are massive opportunities for the channel, but not unless they re-organise their billing," says Muller. The typical billing systems used to process the sales of goods and services are grossly inadequate in the hosting world.
OBT and other hosters have begun to offer white-label billing, so a reseller with 10 customers would simply receive 11 invoices.
Next: Does the channel drive the hosting market?
Channel drives the host market
Melbourne IT's Gore says that around 60 percent of the company's business is through the channel - and that proportion is growing fast.
"The channel community for us is extremely important and we expect to see a higher percentage of sales over the next few years," he says.
ICO's Chicktong says that resellers play a key role in helping find new business, with around 25 percent of sales coming from the channel in the past year.
"We have identified the channel as the next big market and there will be a big push for us in the next few months to capitalise on the presence that itX has," says Chicktong.
And for the companies themselves the business case is pretty compelling.
"I think there is a tremendous potential out there for the reseller community," says Chicktong.
Adrian Britton, head of products with Hostworks, says that one of the biggest emerging opportunities for the hosting industry over the next few years will be education. More and more learning resources are moving online from web-based classes to digital libraries and the like.
"Education is the evolving market here. There really are some great opportunities," he says.
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