Hosting and Colocation Regional Strategies for Growth April 2015
Key Findings Location is becoming increasingly important for colocation and hosting providers alike, with a growing need by those providing services to have services delivered from facilities closer to the end user The network will play a vital role in keeping distributed operations connected. Expect to see significant investment in the network, but demand for greater automation and network management will push the emphasis away from the hardware with the focus being on network virtualization and NFV As expected, the US and UK show greater market maturity for colocation and hosting than France and Germany, but we expect demand for outsourcing of IT services to eventually grow in these markets driven largely by an increasing focus on data regulation. 2
Overall sample size N=453 USA 33% UK 22% France 23% Germany 22% Web-based survey: 150 from US 100 from UK 100 from Germany 103 from France 3
When looking at the survey results, for Europe we focused on the Hosting Providers The European and US hosting markets are dominated by smaller players. In Europe, these are focused on regional service provision, having originated largely from the Web hosting or telecom industry. In the UK, it includes a high number of startups operating for 2 years or less. 2015 Expected Revenue Hosting Providers 2015 Expected Revenue Over $500M $100M to less than $500M 1% $50M to less than $100M 3% $20M to less than $50M 15% $5M to less than $20M 81% Less than $5M 1 2 3 4 5 6 7 8 9 % of European Hosting firms N = 222 S4. Which of the following categories best describes your organization's expected annual revenue for 2015? 4
When looking at survey results for the US, we looked at Colocation providers Of the 120 survey respondents that offer colocation, 47 were in the US The 2 largest were an IT Outsourcing firm and a VAR. Colocation Services 2015 Expected Revenue Over $500M $100M to less than $500M $50M to less than $100M $20M to less than $50M $5M to less than $20M 4% 9% 19% 68% 2 4 6 8 % of US Colocation Firms N = 47 S4. Which of the following categories best describes your organization's expected annual revenue for 2015? 5
Overall most respondents considered themselves to be Hosting providers Primary Business of the Firm Revenue by Service % of all Providers 10 9 8 7 6 5 4 3 2 15% 6% 6% 21% 52% 8% 7% 5% 3% 5% 8% 5% 3% 3% 2% 1 22% 83% 78% 59% Software Telecom VAR/ Distributor IT Outsourcing % of Revenue 10 9 8 7 6 5 4 3 2 13% 9% 14% 8% 55% 8% 7% 6% 15% 11% 1 23% 4% 65% 52% 13% 9% 1 8% 59% Outsourcing PaaS SaaS Colocation Hosting 1 USA UK Germany France Hosting Services 1 USA UK Germany France N = 453 I6. Is your organization primarily in the business of? M2. Approximately what percent of your business revenue is from these areas? 6
Almost all providers expect double-digit growth Revenue Growth Hosting Providers Revenue Growth Colocation Providers % of Hosting Providers 10 8 6 4 2 23% 5% 69% 46% 17% 34% 3% 3% US (n=78) UK (n=59) 14% 7% 78% Germany (n=83) 3% 9% 74% 15% France (n=80) >2 rev. growth 16-2 growth 10-15% growth Single digit growth % of Colocation Providers 10 8 6 4 2 4 9% 42% 23% 32% 39% 9% 6% US (n=45) UK (n=31) 17% 25% 58% 27% 73% Germany (n=12) France (n=30) >2 rev. growth 16-2 growth 10-15% growth Single digit growth S4a. What % revenue growth are you expecting for 2016? 7
Datacenter numbers are due to grow strongly in UK, US Datacenter Growth European Hosting # of datacenters 2,500 2,000 2,366 1,939 1,500 1,000 500 218216 270348 0 UK (n=59) Ger. (n=81) FR (n=80) Today In two years Datacenter growth US Colo Providers # of Datacenters 3,500 2,870 3,000 2,500 1,821 2,000 1,500 1,000 500 0 Today In two years (n = 46) E1. How many datacenters does your company currently own/operate? E2. In two years, approximately how many datacenters do you expect your organization will own and operate? 8
Most Hosting firms plan to add capacity in a new region over the next two years German firms are the most likely to be adding capacity elsewhere. 81% of US providers are planning to add capacity in a new region. Adding Capacity in New Geographies % of Hosting Providers 10 6% 2% 2% 8% 11% 1 8 31% 23% 6 83% 89% 4 68% 66% 2 Don't know No Yes USA (n=78) UK (n=59) Ger. (n=83) FR (n=80) N = 300 E3. Over the next two years, does your organization plan to add datacenter capacity in a new geographic region? 9
Services Definitions Hosting Services: Hosting services can include basic compute and storage infrastructure, web hosting, application hosting to managed services. Pricing is typically based on hourly or monthly usage. Software-as-a-Service (SaaS): A finished application where the independent software vendor (ISV) owns the intellectual property (IP) of the application and manages all access to the application, including security, availability and performance in a multi-tenant environment. Outsourcing Services: Typically where an outsourcer or systems integrator takes over an entire IT business function for your organization, including supplying IT systems, applications and staff. Contracts are typically multi-year commitments. Platform-as-a-Service (PaaS): A hosted application development and deployment environment that typically includes a set of tools, libraries and services configured as a solution. This solution typically supports the entire application development lifecycle, including coding, testing, deployment, runtime, hosting and delivery. Colocation: Colocation services are rack space and Internet access where customers typically deploy and manage their own hardware and software. NOTE: These definitions are different than those in 451 s Market Monitor Research. 10
Regarding services, there were definite differences in offerings by country Services Offered Now and in 2 Years US Colocation Firms, European Hosting Firms 10 8 Hosting Over 5 of US firms offering colo also offer other services. Over 2 do not plan to offer colo in future. Around 1 of UK firms plan to add PaaS services some will drop colo Half or more German respondents already offer SaaS and PaaS. Over 3 plan to add Outsourcing In France, around 1 of respondents plan to stop offering Hosting, while around 5% plan to start offering SaaS % of Providers 6 4 2 Today 2 yrs Today 2 yrs Today 2 yrs Today 2 yrs US (n=47) UK (n=59) Germany (n=83) M1. Which if any of the following IT services does your company provide, resell or provide consulting services for today? M3. Now thinking out two years, which of the following IT services will your company provide? France (n=80) SaaS Outsourcing PaaS Colocation 11
The Hosting market is evolving rapidly Hosting providers continue to move up the stack to application hosting services. Infrastructure is still important, and some elements are growing (cloud) faster than others (dedicated servers). According to 451 Market Monitor, this shift to application hosting represents a US$3bn change. N = 298 Services Provided Now and in 2 Years Services Provided Now and in 2 Years % of Respondents 8 7 6 5 4 3 2 1 7 54% 58% 62% H1. Which of the following hosting services does your company currently provide? (Choose multiple) Which will be provided in 2 years? 39% 35% App. Hosting Infrastr. Hosting Mgd Services Today In two years 12
In the US, 55% of colo respondents expect colo revenue to shrink, as they move up the stack We estimate the North American hosting market, which represents about 63% of global revenue (CHECK) to experience 13% CAGR through 2016 to be valued at US$34bn. Revenue Movement Over 2 Years, US Colo Firms Outsourcing Services PaaS SaaS Colo Hosting 28% 28% 21% 32% 32% 21% 17% 17% 21% 2% 26% 3 36% 26% 13% 55% 26% 3 21% 19% Grow rev Same No rev Shrink rev 2 4 6 8 10 % of Colocation Providers N = 47 M2. Approximately what %of your business revenue is from these areas? M4. In two years, approx. what % of business revenue will come from these areas? 13
US Colocation providers use their own and partners infrastructure US firms may use partners infrastructure in particular geographic areas or perhaps for particular services. Infrastructure for Infrastructure Hosting US Colo Firms % of Colocation Provicers 7 6 5 4 3 2 1 67% 67% 63% 59% 37% 41% Own infr. Partner's infr. Resell partner's svcs Today (n=27) In 2 yrs (n=27) H5. Today which types of infrastructure does your org. leverage to provide Infrastructure Hosting? H6. In two years which types of infrastructure will your org. leverage to provide Infrastructure Hosting? 14
US Colocation providers plan to increasingly use partner infrastructure More providers in this market are likely to resell a partner s infrastructure we expect the US is providing a blueprint for how service delivery will shift in coming years. Infrastructure for Application Hosting US Colo Firms % of Colocation Provicers 9 8 7 6 5 4 3 2 1 84% 83% 52% 38% 38% 31% Own infr. Partner's infr. Resell partner's svcs Today (n=32) In 2 yrs (n=29) H5. Today which types of infrastructure does your org. leverage to provide Application Hosting? H6. In two years which types of infrastructure will your org. leverage to provide Application Hosting? 15
Infrastructure Hosting & Cloud Trends The challenge faced by IaaS specialists, telcos, enterprise technology vendors, managed service providers, outsourcers and hosters is how to differentiate their offerings in the marketplace to make them attractive. The hyperscalers of AWS, Google and Microsoft have huge economies of scale, diverse revenue streams and the ability to squeeze margins to the limit. The price of simple IaaS services will continue to be eroded, and these services will continue to be commoditized. Service providers that have previously emulated the likes of Amazon Web Services (AWS) in terms of IaaS services will increasingly realize that by emulating them, they have lost their differentiation and are now fighting a battle they can t win. Their focus will turn to traits already acquired - experience, management and support capability, and diverse products. This may include integrated services, end-to-end management, industry-specific product stacks, application management, regional capability, global network capability and hybrid or multi-cloud. Brokering or reselling the hyperscalers services is likely to result in a smaller cost base, but with the basis from which to upsell value. 16
Infrastructure Hosting: Definitions Hosted Dedicated Servers: Resources dedicated only to one client. Little to no pooling of IT resources, automation or orchestration; dedicated infrastructure is not shared with other customers. Hosted Private Cloud: Resources dedicated only to one client. Pooled IT resources, automated and orchestrated but on dedicated infrastructure. Public Cloud: Resources shared among multiple organizations. Pooled IT resources, automated and orchestrated, shared by multiple customers. NOTE: These definitions are different than those in 451 s Market Monitor Research. 17
Infrastructure Services Revenue - Movement Over 2 Years, US Colo Providers In the US Public Cloud 28% 13% 3 3 Grow rev Growing revenue will be from Hosted Dedicated Services, while reductions will be seen with Hosted Private Cloud Service Host Priv Cloud Hosted Ded Server 19% 13% 32% 32% 13% 3 36% 26% Same No rev Shrink rev 5 10 % of US Colocation Providers N = 47 I1. Please estimate what percent of your company s current infrastructure services revenue comes from the following types? As well, please estimate out two years from now. 18
Nearly all German respondents offer a Cloud Platform Firms elsewhere continue to add cloud platforms. Q: Does Your Company Offer A Cloud Platform Now? Will It In Two Years? % of Hosting Providers 10 8 6 4 2 92% 99% 99% 85% 78% 8 83%84% USA UK Germany France Now In two years N = 300 N7. Does your organization currently offer a cloud platform? A cloud platform is technologies used for the delivery of cloud services. N8. Plan to offer in the next two years? 19
Hosting companies are offering a variety of platforms to customers Hosting companies are clearly remaining agnostic when it comes to the cloud services they offer to customers and platforms of choice. Openstack figures are lower in the US than in Europe. Cloud Management Tools Used To Support Hosted Private Cloud % of Hosting Providers 35% 3 25% 2 15% 1 5% VMware vsphere Amazon Eucalyptus Microsoft Systems Ctr VMware vcloud Citrix CloudStack Openstack US (n=39) UK (n=28) DE (n=51) FR (n=54) Homegrown tools N = 172 I3. Which cloud management tools does your company use to support [Hosted Private Cloud]? 20
Hybrid Cloud Service Plans Over 9 of Hosters offer Hybrid Cloud services, or plan to Connectivity between all cloud environments will be a key part of cloud provisioning for hosting providers moving forward. % of Hosting Providers 10 9 8 7 6 5 4 3 2 1 8% 7% 12% 36% 39% 31% 56% 55% 56% Customer private to public Customer private to hosted private Hosted private to public No plans to offer Plan to offer in two years Currently Offer N = 233 I3b1. Does your organization currently offer, plan to offer in two years or have no plans to offer any of the following hybrid cloud services for cloud interoperability? 21
Partners For Cloud Platforms Partners vary by country FR ISV In France, Networking Software and Equipment Vendors are important partners. German firms work with VARs. In the UK, firms mainly partner with VARs and ISVs. DE UK US 2 4 6 8 10 % of Hosting Providers Networking Softw. Vendor Networking Equip. Vendor VAR N = 269 N9. Does your organization currently partner with any of the following types of organizations to offer a cloud platform to your clients? 22
Storage Integration is the most common for Hybrid Cloud Though many providers are also relying on network integration and management tools for hybrid cloud capabilities. Integrating Hybrid Clouds Identity/Directory management integration Management tool integration Network integration Compute integration Storage integration France Germany UK USA N = 233. 20. 40. 60. 80. % of Hosting Providers I4b. Hybrid can be defined in various ways. What technology is used to integrate these hybrid clouds together? 23
Many hosting firms have already implemented SDN and virtualized the network Hosting providers seem to have significant experience already with SDN. It appears many are already looking at network virtualization as well, with a goal of getting to NFV in the next two years. Use of Networking Technologies Now and in Two Years None Network Function Virtual (NFV) Network Virtualization Open Daylight OpenFlow 1% 19% 36% 42% 53% 57% 57% 63% 8 In two years Today 2 4 6 8 10 N = 300 N5. Does your company currently use any of the following networking technologies? N6. Now thinking out two years, which of the following networking technologies will your company use? 24
What does this mean for router numbers? Hosting Providers Changing # of Routers US Colocation Providers Changing # of Routers 10 # of Hosting Providers 8 6 4 2 66% 56% 88% 12% 31% 43% UK (n=59) Ger. (n=83) FR (n=80) % firms reducing % firms adding # of US Colocation Providers 8 7 6 5 4 3 2 1 74% 15% % firms reducing % firms adding (n = 47) N1. Today, how many of each of the following types of equipment does your company own or operate? [routers] N2. In 2 years? 25
What will happen with switches? Hosting Providers Changing # of Switches US Colocation Providers Changing # of Switches % of Hosting Providers 9 8 7 6 5 4 3 2 1 85% 67% 56% 41% 33% 1 UK (n=59) Ger. (n=83) FR (n=80) % firms reducing % firms adding % of US Colo Providers 8 7 6 5 4 3 2 1 72% 19% % firms reducing % firms adding (n = 47) N1. Today, how many of each of the following types of equipment does your company own or operate? [switches] N2. In 2 years? 26
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