451 Research Summit: Building A Digital Infrastructure Playbook

LAS VEGAS - What are the key ingredients in the “playbook” for success for hosting service providers? That was the key question at this week’s Hosting and Cloud Transformation Summit, where 451 Research outlined its vision for a portfolio approach to drive data center transformation.

That playbook must sort out the right mix of infrastructure and services, find the balance between on-premises and hosted services, and how to position those offerings for IT buyers.

“Part of the challenge has been understanding what’s coming,” said Michelle Bailey, VP of Digital Infrastructure and data center initiatives. “We remain very bullish about the market. You’re going to start to see that cloud and hosting is going to be a bigger part of the IT portfolio going forward as we move into this next era.

“The expectations on all of us are going to climb,” said Bailey. “IT buyers will have higher expectations, IT suppliers expect higher levels of service.”

Bailey said the economy is getting better, but not quite there yet. The most important point is that the cost of capital remains low, which has recently allowed a number of data center companies to raise debt at what is an optimal time.

Where the Hosting World Is Headed

What are the key trends? 451 Research did a study this year in conjunction with Microsoft consisting 1,500 cloud hosting companies.

“What was really interesting to us, is that customers moving to a hoster are thinking of two things: cutting costs, and  how they’re going there to grow their business,” said Bailey. “Once a customer has been there for a certain time, growing the business becomes more important.”

“Despite an improving economy and the huge shift to digital business, IT spending has not rebounded. Cost-cutting took center stage in the wake of the economic meltdown in 2008, and some companies have not yet shifted their IT strategy to suit an environment of opportunity.

“There’s been IT executives that have built their careers on cost cutting projects,” said Bailey. “Now the market has returned and the cost of capital is low. It is dangerous that we’re seeing cost-cutting projects dominate. If you’re investing in efficiency when cash is abundant, it means you’re opening up the door for competitors to grab the market.”

“If we’re going to change the industry, we can’t be spending more on efficiency than we do on projects that drive new business.”

Services: Critical Chapter in the Digital Infrastructure Playbook

The most successful hosters are the ones that help customers grow their business through supporting new applications, and enabling them to enter new geographies.”Once they move to a hoster, they look at the hoster as the organization that will help them grow their business,” said Bailey.

451 has also found that the portfolio of services that service providers offer has grown dramatically, and that customers are now prepared to pay separately for security services. “This is different,” said Bailey. “Previously, this was thought of something that was built into the price. Security services are one of the biggest opportunities for service providers going forward.”

Bailey also sees growth in sales of disaster recovery services. In fact, customers are now more interested in premium services. The average number of services customers are buying is nine – and the overall expectations are higher. But there’s no clear playbook yet. The theme this year is building that digital playbook.

SaaS applications are changing as well. “What’s coming is cloud native applications built specifically for cloud, built for scale,” said Bailey. “With that everything changes. There will be definitive SLAs around these applications.”

With the changing world, hosting provider downtime is a more significant impact to businesses today than it ever was. IT organizations need to figure out which part of their portfolio can live where, and it’s up for service providers to help them along the way.

“Cloud was built on a lack of transparency, but the number one need from customers is trust and support,” said Bailey. “The next selection criteria for cloud will be expansion capabilities.”