MARKET FORECAST Web and Application Hosting 2016 SEP 2016 Liam Eagle, Research Manager, Hosting and Cloud Rory Duncan, Research Director, European Services The global web and application hosting market is undergoing a transition as new types of services provide transformational capabilities for customers infrastructure. Managed services and niche offerings can provide value-add and client loyalty, but may require new operating models as cloud delivery and point-of-sale consumption become the new norm. 2016 451 RESEARCH, LLC WWW.451RESEARCH.COM
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. 2016 451 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 10018 P 212-505-3030 F 212-505-2630 140 Geary Street 9th Floor San Francisco, CA 94108 P 415-989-1555 F 415-989-1558 37-41 Gower Street London, UK WC1E 6HH P +44 (0)20 7299 7765 F +44 (0)20 7299 7799 1 Liberty Square, 5th Floor Boston, MA 02109 P 617-261-0699 F 617-261-0688 ABOUT THE AUTHOR LIAM EAGLE RESEARCH MANAGER, HOSTING AND CLOUD Liam Eagle is a Research Manager, VotE Hosting & Cloud. His research examines 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. II
Key Findings Global web and application hosting is expected to grow to $27.9bn in 2020; however, its share of the overall hosting market will decline to 26.9% during that time, as managed hosting becomes a larger portion overall. Transformation in the hosting market means that workloads once served by shared or dedicated hosting products are better addressed using IaaS, SaaS and other products. Adapting to these conditions means service providers will be revising their expectations and likely their service portfolios. A significant portion of the remaining market for shared web hosting involves the work of freelance web designers, developers and agencies, building sites for small businesses. Most hosting providers do very little to support this common use case. Hosting firms focused on web workloads and small business users are becoming increasingly aware of the fact that software is critical to how they go to market with their infrastructure. III
Executive Summary INTRODUCTION The advance of technology especially software and internet technology has left a trail of deeply disrupted businesses in its wake. The music industry, book selling (along with general retail), newspaper, taxi and video rental industries have all changed dramatically, frequently at great cost to the long-standing players. At a basic level, this kind of technological transformation has been a boon for hosting providers, which operate the infrastructure that underlies these advances. Service providers generally benefit from being on the side of technology; however, the benefits inherent in that position may blind some incumbent vendors to the threats posed by transformation. Because of the ongoing evolution and simplification of service delivery, and adjacent or branching trends such as the consumerization of IT, service providers particularly those offering hosting in the traditional sense (e.g., dedicated, web presence) are subject to some of the same evolve or be left behind incentives as these businesses. Effectively observing and adapting to transformation in the hosting space should be a critical focus for all businesses in the market, even if those adaptations are incremental. For many hosting providers, adapting to the changing models for consuming services will mean rethinking strategies at a very basic level, including broad generalists specializing in a particular market or technology, or infrastructure-focused businesses emphasizing competency in supporting a specific application. This report highlights some specific areas of opportunity and avenues along which web and application hosting service providers may look to adapt, as they move from dealing with traditional products and technology models toward embracing the transformative forces affecting the services market they inhabit. This report continues 451 Research s ongoing coverage of the web and application hosting sector, the portion of the IT services market focused on web workloads and applications. A significant proportion of the vendors delivering these services come from the traditional web hosting infrastructure space, and a large part of the audience for these services is made up of small businesses. Web and application hosting is a subset of a larger channel of Services coverage at 451 Research that includes managed hosting, IaaS and other managed infrastructure and application services. The report provides a market overview and an update on past iterations of this research, including Web & Application Hosting 2015. An annual installment in an ongoing series, this report highlights key market conditions and trends influencing the web and application hosting segment worldwide. It points to key overall market developments as well as significant strategic trends in the space, as well as emerging opportunities for service providers. It updates Market Monitor data with projections through 2020, profiles major market players, and shares data on financing and mergers and acquisitions. METHODOLOGY Market data appearing in this report was assembled through 451 Research s proprietary Market Monitor database, which tracks hundreds of companies in colocation, hosting, content delivery networks and cloud infrastructure services. It includes information on revenue by quarter and product mix, as well as information on server counts, domains, interconnection and other metrics. The database content was collected through a variety of techniques, including briefings, public disclosures, derivations based on user counts and average revenue per user (ARPU) along with other methods. 451 Research uses earnings announcements and disclosures where available to populate revenue figures for companies discussed within this report. For 2016 and beyond, and for private companies that do not disclose revenue numbers, 451 Research uses a mixture of publicly available information, in-depth interviews with industry participants and estimates of revenue based on industry averages, customer count and our analysis of the company s competitive position in the market. When revenue was not specifically limited to 451 Research s definition of hosting services, proportional service was assumed according to discussions with service providers. Our overall market sizing figures represent 451 Research estimates for the global hosting market as a whole, and include companies specifically named to our leaderboard, as well as companies that are not. IV
WEB AND APPLICATION HOSTING 2016 This report draws on several proprietary services operated by 451 Research, including the M&A Knowledgebase and Market Monitor services, which provide data on M&A transactions, and market sizing and company leaderboards, respectively. 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. Forward-looking 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 covered in 451 Research channels including Business Applications; Cloud Transformation; Data Platforms and Analytics; Datacenter Technologies; Development, DevOps and 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. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as Voice of the Connected User Landscape, Voice of the Enterprise, Market Monitor, Cloud Price Index, 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: www.451research.com. This report was written by Liam Eagle, Research Manager, Hosting and Cloud. Please direct all questions to liam.eagle@451research.com. Note: Illustrative examples of specific service providers are offered throughout this report. They are included to provide real-world context to services and trends being discussed. The companies mentioned are not necessarily businesses we consider winners or leaders in the space, nor are these lists exhaustive. In most cases, there are other examples of these services and trends. V
Table of Contents 1. MARKET OVERVIEW 1 Figure 1: Service Provider Segments Covered by Market Monitor.........................1 MARKET SHARE ANALYSIS METHODOLOGY AND STRUCTURE...................... 1 MARKET SIZING AND SECTOR BREAKDOWN............................... 2 Figure 2: Global Hosting Market Segmentation ($M)...............................2 INTERNATIONAL HOSTING MARKET TRENDS............................... 3 PERSPECTIVES AND ANALYSIS...................................... 3 Key Market Trends.................................................3 Ongoing Market Stratification...........................................3 New Segments and Workload Movement.....................................3 CLOUD TRANSFORMATION IN THE HOSTING SPACE............................ 4 What Remains of Hosting for Hosting Providers?.................................4 Figure 3: Service Provider Strategies Related to Professional Developers......................5 KEY PRODUCT TRENDS.......................................... 6 Web Hosting as a Software Business........................................6 Figure 4: Sample Web Hosting Provider Software Strategies............................6 Application Hosting Strategies..........................................7 The Managed Services Market...........................................7 Hosting Providers as Cloud Enablers........................................8 Figure 5: Sample Managed Hosting Service Enablers...............................8 2. FINANCE AND M&A 9 MERGERS AND ACQUISITIONS...................................... 9 Figure 6: Selected Web and Application Hosting Market M&A Activity, 2015-2016.................9 FINANCE................................................. 11 Figure 7: Web and Application Hosting Market Financing............................ 11 VI
WEB AND APPLICATION HOSTING 2016 3. CONCLUSIONS AND RECOMMENDATIONS 12 SERVICE PROVIDER RECOMMENDATIONS................................. 12 4. FURTHER READING 13 5. INDEX OF COMPANIES 14 VII