Done right, hosting can be very profitable for partners, but it’s hard to compete with the mega-vendors without taking a co-location approach.
Now that I’m out of the hosting business, competitive concerns no longer limit me from sharing my insights.
Done right, hosting can be very profitable. But the hosting landscape is changing rapidly and there are many pitfalls.
Most hosting providers run their own datacenters or they rent space for their equipment in a bigger facility (co-location). In every country where I’ve had hosting discussions, a key element is that the hosting provider will note that the data will stay in their country and that’s why Microsoft, Amazon Web Services (AWS) or Google is less trustworthy. This is like sticking your head in the mud and hoping potential customers will not perform their due diligence.
In reality, all three vendors are working hard on data privacy and data protection. Both Microsoft and AWS are aggressively rolling out datacenters in multiple countries, so the risk is imminent that one of their datacenters will pop up within your borders. You’re toast if that was your key competitive edge.
Running your own datacenters isn’t sustainable in the long run. Today the cost for a local hosting provider to operate its own datacenters is less than buying services from one of the three giants, but this is something that’s likely to change. The cost for running computing at a mega scale is far less than any regional player can ever compete with. I expect prices will keep falling for a few years until it becomes less profitable to run your own datacenter than to buy computing power from someone like Microsoft, AWS or Google.
To prepare, don’t invest in your own datacenter facility. Instead, go with co-location, which will help your profitability short term and make it easier for you to gradually cut over to Azure or AWS.
To be able to scale up while being profitable, you need to make big bets and take an industrialized approach. At my old hosting company, Idenet, we did this by building our solutions with standardized building blocks.
It was also key to not be shy about the fact that with standardization and automation, you can reduce man hours. At Idenet we managed to grow the business without adding people, and you might even be able to reduce the number of people if you do it right. You will need great people taking care of delivering your services, but more and more basic tasks are being done through great tools.
That leads me to another key insight: Don’t let your technical people go out and buy best-of-breed tools and solutions. I found it crucial to take a strategic approach where we said that our preferred vendor was Microsoft for everything. Microsoft doesn’t have the best software in every single category, but that’s not important. It often has solutions that are good enough, and with the company’s pace of innovation, a better release will be coming soon.
The main advantage with Microsoft is that its products often work well together. If you go with best-of-breed, you end up with more people, less integration and higher costs.
If you want to survive and thrive as a hosting provider, you can’t run your own datacenters in the long run, and you can’t just focus on infrastructure like virtual machines. Instead, you’ll need to climb the value chain and take responsibility for complex applications and workloads. That’s where the magic happens! Only then will you be in a place that keeps you from becoming obsolete.
When you focus on applications and workloads, it becomes less important who actually owns the datacenter. The true margins lurk higher up in the stack.
More Columns by Per Werngren:
About the Author
Per Werngren has held many roles at the worldwide level of the International Association of Microsoft Channel Partners (IAMCP), including chairman and president.
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