Editor’s Note: This is the latest in a series of guest posts by Phil Shih, founder of Structure Research.
The hosting business has shown exemplary growth since its inception in the 90s. Surging Internet adoption and the larger shift to communicating, collaborating and conducting business online guaranteed that hosters would have plenty of addressable markets. The shift to outsourcing infrastructure rather than housing it on-premise was another key driver.
The market is still healthy. There continue to be businesses that need an online presence and there are plenty of organizations that use hosting for email or document management or lease servers to run applications or archive files. But it is also fair to say that the low-hanging fruit is not as plentiful as it once was. Having a personal website is still something people want to use hosting for but there are other outlets now. Facebook is perhaps the best example of a plausible alternative to web hosting and there is no shortage of free hosting services that similarly attract customers previously targeted by hosters.
Maturation can mean shrinkage
The fact is that as an industry grows and matures competition tightens and the total addressable market tends to shrink. To frame the problem at its core: with fewer new Internet adopters and growing numbers of outsourced hosting users along with more alternatives, there are fewer people and businesses for hosters to sell to.
There are plenty of ways for hosters to address this dilemma. They can move up-market into other infrastructure services or add value around the domain name, hosting and email “triple play”. But it is imperative that hosters start looking at easy ways to expand their total addressable market and the most logical thing is to start moving into emerging markets. In places like Brazil, Mexico, South Africa, China, Indonesia and Russia – to name a few – the Internet is just starting to take off and there is a huge untapped market of users that is moving online. They represent prime candidates for business-class domain names, hosting and email.
Check the facts
Consider some of the numbers. In VeriSign’s last domain industry brief, Brazil and China were among the three fastest-growing ccTLDs on a q/q basis. In that same period, total ccTLD registrations were up 5.4% q/q. Takeaway? There is clearly new and accelerating Internet adoption coming from all corners of the world and many of them can be found in emerging markets.
Contrary to common perception moving into new markets is also not hard to do. It certainly is not as hard as it was even five years ago. Country-code top-level domains are readily available on a wholesale basis and set up a small hosting operation is as easy as leasing a few servers or taking down a small colocation suite. Automation, remote management and software portability make the location a relatively minor issue. The main challenge for the hoster will be to hire some local language support staff, which is plentiful and easy to find in emerging markets at an affordable cost.
Still a healthy sector
It is worth reiterating: the hosting sector is healthy and continues to grow even in the most mature markets. While things are getting tougher there is still plenty of runway and upside. The tailwinds behind the sector are favourable. But as the market continues to mature hosters would be wise to start looking for opportunities that offset the structural challenges that will have an increasing impact over time. Hedging your bets and expanding the addressable market is the path to long-term success. Take advantage of the fact the Internet is borderless and take your hosting business global.