The opening keynote was delivered by Tier 1′s research director Dan Golding. This is going to be a long post, so i’ll just warn you right from the start that there’s a lot of repetition here and not a lot of digesting. Fortunately, the presentation was more than interesting enough on its own.
Golding’s starting point was the recession. We’ve already (at 18 months), past the median length for a recession. And while there isn’t an end in sight per se, there are some promising early signs, he says.
In terms of its impact on the hosting business, he says that while we’ve seen a softening of business (slowing growth, losing business), people are already making that up. More significant, he says, is the credit crunch.
The credit situation is held up in the hosting business, he says, is that every dollar of equity needs two to three dollars of debt. And most of the data centers in the business are financed via debt. This is the circumstance that is holding up investment and growth in the hosting business (of which data centers, and the data center business, are a part).
He says the credit situation is clearing up – we’re seeing some new debt granted – but the impact will last a few years, because of the holdup in data center capacity growth, in spite of the fact that data centers have been doing well – colo providers grew almost 5 percent quarter over quarter.
Golding says we may be seeing the start of a sea change at enterprises, triggered by the recession, which is partly responsible for enterprises becoming more accepting of the idea of outsourcing their data center operations.
The situation, then, is double-digit growth in demand, and single-digit growth in capacity. Data center utilization is creeping closer to 100 percent utilization. The construction pipelines are more or less empty.
He says we need investment, because providers have to look at new ways of addressing this impending problem. There are ways other than construction to address it, including some new technologies.
Wrapping up his data center section, he says that basically, the data center is looking healthy. Data center space running out “is a good problem to have.”
HOSTING
In his look at the “hosting” market, he says the business is rebounding from a couple of bad quarters, and is starting to see growth again. Tier 1 has identified a few of what it considers “bad business models,” (including the ASP business, focusing on a small handful of large customers, and focusing on new services with not enough leverage). But it has also identified a couple of what it considers to be winning models.
CDN
A brief visit to CDNs. Content delivery is not going well, he says. Commodity bit moving is a loser in the long run. Revenue is falling. If you’re a hosting company and you’re partnered with a CDN, you probably made the right move, as opposed to if you are a hosting company that acquired one.
There is hope for CDNs, but they have to climb the stack to more complex and sophisticated services. Fortunately, the successful CDNs have a lot of free cash right now with which to address their market challenges.
TRENDS
Cloud computing has reached the point in its “hype cycle” where enterprises (because of the hype about the hot trend) are in a position where they have to pay attention to the “cloud.” There’s a lot of interest in public and private cloud, on which hosting providers can capitalize.
Basically, when IT organizations come looking for a cloud computing solution, there’s going to be an opportunity for hosting providers who are able to provide it for them.
There’s a real significance to both the trend and the technology, though. Some hosting companies are making a lot of money doing it right now. And the ones that are, really like it. The most significant of these technologies (in terms of being the easiest to deploy and sell) is cloud storage.
He touched lightly on a couple of other trends – impending environmental regulations, the demographic shift to the internet, the death of “conventional outsourcing” (in the IBM, EDS mode) and the rise of the wholesale data center.
He said a lot here. It was a little tough to keep up. But I got the impression that some of the later parts of the event are going to focus on that last issue, the shift of data center operators toward a more “turnkey” data center offering of the variety that’s more appealing to hosting companies as customers.
RECESSION PROOFING
Hosting providers did better than most of the businesses out there in weathering the recession, but Golding says they need to come out of the recession swinging by doing things right now to make sure they’re positioned well coming out of the recession:
If you’re in the data center business, find a way to build data centers right now; Embrace cloud services and cloud marketing; Hire the people you need now; Diversify your customer base; Trim your product list; Fix your operational procedures; Pursue more certifications and standards; Get lean and mean, by cutting from your bottom line.
LOOKING AHEAD
He thinks the rest of 2009 and 2010 will see growth in hosting, and this event is designed to help you make that happen, with a programming track, and a track centered on networking.
