Application Hosting EXECUTIVE OVERVIEW. and Productivity THOUGHT LEADERSHIP APR Liam Eagle, Senior Analyst, Service Providers

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1 THOUGHT LEADERSHIP APR 2016 Application Hosting and Productivity Liam Eagle, Senior Analyst, Service Providers is used nearly ubiquitously by businesses, and accounts for a large portion of spending with hosting and cloud providers. It is widely supported by hosting service providers. However, those service providers do not always capitalize on hosting as a potential source of revenue, or an anchor for other services RESEARCH, LLC

2 ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to over 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK SAN FRANCISCO LONDON BOSTON 20 West 37th Street 3rd Floor New York, NY P F Geary Street 9th Floor San Francisco, CA P F Gower Street London, UK WC1E 6HH P +44 (0) F +44 (0) Liberty Square, 5th Floor Boston, MA P F ABOUT THE AUTHOR LIAM EAGLE SENIOR ANALYST, SERVICE PROVIDERS Liam Eagle covers the Service Provider space for 451 Research, focusing on Web and application hosting, managed hosting and cloud infrastructure. His research focuses in part on the adaptation of traditional hosting technologies and models to accommodate emerging needs. These include Web presence SaaS, the focus on web professionals and the channel market for cloud infrastructure. Liam has closely covered the hosting market for more than 10 years, giving him a front-row seat for many of the transformative trends that shaped the business, including the emergence of virtualization and cloud technologies, and the development of the hosting market s partner ecosystem. II

3 Key Findings platforms are closely tied to the evolution of application environments. was one of the first business workloads to shift from on-premises infrastructure to hosted environments, and more recently to SaaS. Today, is deployed across a mixture of all three; however, it is one of the key drivers of the SaaS model within the enterprise. Among enterprises surveyed in a custom Microsoft survey conducted by 451 Research, 54% of respondents identified as comprising a significant portion of application services spending with hosting and cloud providers during the next two years, second only to databases. The platform application market is top-heavy, led by a small number of very large vendors (such as Microsoft and Google). Unlike other software categories, the applications most widely used among enterprises are also popular among smaller businesses, and even individual users. Among Web and application hosting providers, inboxes are frequently treated as a commodity and a lowvalue resource that can be added to infrastructure offerings at a small cost to the service provider. As the platform vendors drive new infrastructure and cost models, new roles are emerging for the partners that help enterprises migrate workloads to the cloud and provide ongoing management. Lagging hosting providers have an opportunity to convert from a cost into a source of revenue. Internationally, the market is dominated by the same small group of software platforms, with some regional tendencies toward certain technologies, but no isolated regional players of note. For this reason, language support is a notable requirement of the software. III

4 Executive Summary Note: This report is part of a larger collection of research and reports focused on the application portion of the Web and application hosting market. Although reports such as this one may focus on specific categories of application, parts of this report (in particular Section 1) are broadly applicable to the business of hosting applications and the larger service provider market. Portions of this content may appear, with some editing, in other reports within the application hosting subcategory. INTRODUCTION Within the wide variety of application services that can potentially be delivered by Web and application hosting providers, is the most widely deployed across service providers, and the most widely consumed by customers. is broadly applicable and widely consumed across vertical markets and customer size categories from enterprise to small business. As a result, it is broadly representative of the shift in placement of workloads from on premises to service provider hosted application environments and vendor-hosted SaaS products. Because largely lends itself to multi-tenancy and benefits from being centralized off-site, it has also been an early driver of enterprises and other businesses toward cloud-based application services. For many hosting providers in the traditional infrastructure-focused hosting space, is considered a low-value add-on resource, and in some cases a cost of doing business. However, driven by the advance of platform technology, and the connection of a variety of additional services, is becoming a compelling revenue opportunity for a larger variety of service providers. This may include providing premium hosted services, reselling Office 365 or Google Apps, or both. METHODOLOGY This report provides a mostly qualitative look at an established segment within the application side of the Web and application hosting market. It is based on a range of primary research methods, including conversations with service providers, developers and end users, as well as participation at tradeshows related to the delivery of Internet infrastructure and applications. Briefings were conducted with platform vendors including Microsoft, Google and Zimbra; service providers including Intermedia and Ceryx; and supporting technology suppliers, including Odin (Ingram Micro), Ensim and BitTitan. Reports in this format provide snapshots of emerging markets in this case, a well-established market served largely by a fairly small group of well-established technology vendors, and a large group of channel partners. 451 Research is in the early stages of developing new research tools for producing more detailed and quantitative coverage of the and productivity application businesses. Companies covered in this report also appear in 451 Research data products, including the M&A KnowledgeBase, which provides data on M&A transactions, and Market Monitor, which provides market sizing, growth projection and company leaderboards. This report was written by Liam Eagle, Senior Analyst for the Service Providers channel. Any questions about methodology should be addressed to Liam Eagle at: liam.eagle@451research.com. Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the company s core intelligence service, 451 Research Market Insight. Forwardlooking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. Emerging technologies and markets are also covered in additional 451 Research channels, including Business Applications; Cloud Transformation; Data Platforms and Analytics; Datacenter Technologies; Development, DevOps & IT Ops; Enterprise Mobility; European Services; Information Security; Internet of Things; Mobile Telecom; Multi-Tenant Datacenters; Networking; Service Providers; Storage; and Systems and Software Infrastructure. IV

5 APPLICATION HOSTING: AND PRODUCTIVITY Beyond that, 451 Research has a robust set of quantitative insights covered in products such as ChangeWave, Voice of the Enterprise, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the Web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: Note: Specific service providers are used as examples throughout this report to provide real-world examples of the services and concepts being discussed. The companies mentioned are not necessarily businesses we consider leaders in the space, nor are these lists of vendors exhaustive. V

6 Table of Contents 1. SERVICE PROVIDERS AND APPLICATION HOSTING RESEARCH S EVOLVING SERVICE PROVIDER TAXONOMY Figure 1: Updated Service Provider Channel Taxonomy SMBS, SAAS AND THE BEST EXECUTION VENUE Figure 2: SMB Service and User Stratification APPLICATION HOSTING AS A SERVICE PROVIDER STRATEGY Figure 3: An Example of Service Provider Application Bundling via APPLICATION HOSTING VERSUS SAAS ANCHORING APPLICATIONS TO IT SERVICES DIRECT BUSINESS (COMPETITION) AND CHANNEL OPPORTUNITIES (PARTNERS) TECHNOLOGY AND VENDORS 6 EVOLUTION OF SOFTWARE AND BEV ENTERPRISE AND SMALL BUSINESS AND WEB HOSTING AS AN ANCHOR FOR ADDING VALUE Selected Vendor Comparisons Figure 4: Server Technology Vendors Figure 5: Application Hosting Service Providers INTERNATIONAL TRENDS STRATEGY AND CUSTOMERS 11 SAAS AND CHANNEL STRATEGIES SERVICE PROVIDER STRATEGY FOR ADDING VALUE Figure 6: Service Provider Avenues for Adding Value to SUPPORTING TECHNOLOGIES Figure 7: Service Automation and Management Platform Vendors VI

7 APPLICATION HOSTING: AND PRODUCTIVITY 4. CONCLUSIONS AND RECOMMENDATIONS 14 SERVICE PROVIDER RECOMMENDATIONS ENTERPRISE RECOMMENDATIONS VENDOR RECOMMENDATIONS FURTHER READING INDEX OF COMPANIES 17 VII