Editor’s Note: This is the latest in a series of guest posts by Phil Shih, founder of Structure Research.
The hosting business is young and has a bright future ahead of it. But the market is getting tougher and big names like Amazon, Google and Microsoft are circling the sector. What can hosters do to fend them off? What are the keys to competing and winning long-term?
The best place to find the answer is to look at the sector’s success stories. In the cloud, we only need to look as far as Amazon Web Services. In dedicated hosting, SoftLayer went on a massive run with its automation mantra and in shared hosting, we have seen hosters succeed by unlocking the up-sell challenge. What do these three success cases have in common? They were driven by a platform.
What is a “platform”?
What do we mean by a platform? In a nutshell, a platform is a unified and consolidated infrastructure delivery system built on a single back end (provisioning, management and billing) and consumed by the end-user on-demand and in a highly automated fashion.
Amazon’s platform might not be the easiest thing in the world to use but for technical users, it is a highly cohesive set of virtualized infrastructure services available through a single set of APIs. SoftLayer does the same but with a much better user experience and for a much wider range of infrastructure types (dedicated, virtual, cloud). And in shared hosting, the providers that have prevailed have grown ARPU by enabling existing customers to easily buy additional services. A good example of a platform in the shared hosting market is Parallels Automation, which is user by hosters to deliver hosting infrastructure and SaaS applications from one back-end with a single front-end user experience.
Why is the platform so crucial? Because it is the foundation of the two main ingredients for hosting success: backend efficiency and an enjoyable end-user experience. Backend efficiency translates into margins. And margins mean more available resources for investment in marketing, customer support or product development. An enjoyable and efficient user experience means happy customers that renew and buy more services. It also means easier and faster up-sells. All this translates into the margin and higher ARPU, which reinforces customer stickiness.
Make no mistake. The platform is the key to the sector’s future. Hosters have to continually be ruthless about efficiency and margins and the platform ensures that. There are well-resourced challengers encroaching on the sector and hosters will not be able to leave anything to chance. With an increasingly competitive landscape and tightening prices, hosters will also have to boldly differentiate. The platform is uniquely positioned to solve that problem by creating user experiences that convince customers to eschew other options.
Platforms are not a new thing and they are far from revolutionary. But the sector will need to continually perfect and refine them in order to keep the challengers at bay. For those hosters with messy and legacy-oriented backend systems, they should be thinking now about how to integrate them into a platform. The good news for hosters is that there are few fundamental game changes in hosting. The sector moves at a deliberate and evolutionary pace. There is time for hosters to get this right and remain a viable and valuable option for infrastructure service delivery.