I missed Doug Erwin’s “7 reasons why web hosting is hot” session yesterday. If you were there, I’d love to hear from you – what did he say? What did you think??
Earlier in the day, though, I had a long conversation with Rurik Bradbury from Intermedia.Net about why he doesn’t buy the hype. Everybody says the industry is in a great place. I, for one, have been dazzled by Rackspace’s 59% growth last quarter. And Don Warnet recently mentioned that October was DataPipe‘s best month ever. (I *love* DataPipe’s “operational empathy” tagline, BTW.)
But Rurik points out that web hosting is heading towards utility-land. Yes – ecommerce and SaaS and Web 2.0 and SOX/HIPAA compliance will continue to drive demand for data center space. Yes, Rackspace’s Fanatical Support has been a winning formula. And yes, there’s been lots of excitement surrounding grid computing. But let’s fast forward to a point in time when web hosting reaches dial tone reliability. Once that day arrives, running a web hosting company won’t be very different from running a power company.
The most important implication is, there will no longer be room for large numbers of small players. As a point of reference, you don’t choose from a wide variety of electricity providers when you move to a new town. You just sign up with whomever the local utility happens to be.
In addition, there will be fewer opportunities for differentiation. Rurik has never called any power company, and I don’t even know the name of my local utility. Fanatical Support doesn’t apply in the electricity world, because the technology works too consistently
Last but not least, with no occasions for customer interaction, web hosting providers will become invisible to the average end user. Instead, application developers – such as YouTube’s founders – will be the ones who drive innovation and build customer relationships. Continuing with the local utility analogy, do you give your power company much thought when you shop for new electronics? That, Rurik says, is why ideas people will have billion dollar cash out opportunities – and infrastructure people won’t.
Rurik thinks Intermedia is in a relatively good position, because Hosted Exchange is more idea than infrastructure. On the other hand, the idea belongs not to web hosting providers, but to Microsoft.
So what now? We didn’t come up with an answer. But right after our conversation, I ran into a guy who’s getting ready to ditch the shared hosting model and release a bunch of hosted apps he’s developed. He knows that the risk is much higher, but he’s hoping his payoff will be as well. His business has been making good money, but to him, apparently, web hosting might not be hot enough.
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