Liam says this week's most important trend is web hosting providers' continued expansion of data center footprints. The strong demand for hosting facilities seems like a good sign. At the same time, there are a number of outside-world developments that folks in the hosting business ought to keep an eye on.

1. On Wednesday, in addition to officially releasing RHEL5, Red Hat announced that it will soon launch an open source marketplace called Red Hat Exchange (RHX). As Business Week reports, Red Hat will guarantee the compatibility of RHX products with its platform AND provide tech support for each and every 3rd party product on the exchange. In addition, RHX will allow end users to submit ratings, read reviews and compare notes.

2. Later that afternoon, Microsoft said it will buy Tellme Networks. The Associated Press thinks the deal is worth $800 million to $1 billion.

3. Less than a day later, Cisco announced that it has agreed to acquire WebEx for $3.2 billion (or $2.9 billion, if you deduct WebEx's $300 million cash balance).

4. And last but not least Google sort of confirmed that it's working on a mobile phone.

It's a Wal-Mart-ized web; every Big Co wants to assemble a broader range of more seamlessly integrated products for a wider and better networked audience. This leaves less and less of a market for old school vendors who sell standalone widgets to isolated prospects.

For instance, consider 1&1's recent survey of 765 small business owners. Andreas says 100% of the respondents agree that the absence of a company website is bad for sales, but there's much more to these customers' operations beyond setting up a web presence. Might they not benefit from Zoho or ThinkFree powered productivity apps? SharePoint based collaboration? CRM?

More importantly, Andreas counts "hundreds of thousands of US small businesses" among his customers. As such, one super valuable feature that he's uniquely positioned to deliver is a 1&1 social network through which customers can connect with potential vendors, partners and buyers. I feel like 1&1 is really missing out by amassing a sizable community without leveraging it for its members' benefit.

As SWSoft CEO Serguei Beloussov likes to point out, 1&1 and its competitors have sold tens of millions of "web hosting 1.0" accounts, which collectively generate billions in annual revenue. He's absolutely right - but as you see above, the world's not standing still...

Last Thursday night, I came across this SearchStorage.com article via the Storagezilla blog. Beth Pariseau wrote that Amazon's Simple Storage Service (S3) has had "performance and reliability issues serious enough" to prompt second thoughts among early adopters. In particular, SmugMug CEO Don MacAskill recently decided to move hot storage back in-house.

The instant I finishing reading the article, my RSS reader lit up with Don's response. He still loves Amazon, even if S3 hasn't solved the "speed of light problem". It takes at least 60-80ms for bytes of data to travel the distance between SmugMug's west coast location and Amazon's east coast data center. There's no getting around that. He moved hot storage closer to his web servers NOT to solve Amazon's performance problems, but to reduce those thousands of miles to inches. Don also tracked down the Storagezilla post and added a comment there.

Fast forward to this morning, when someone sent me a snippet from a Tier 1 Research news brief in which Dan Golding wrote about Amazon's disillusioned users. I gave Dan a hard time for basing his article on the same two customers Beth interviewed without giving her credit. Dan argued that attribution isn't customary in the analyst world. Besides, we shouldn't even be having this conversation. As a non-subscriber, I should have deleted any T1R content that came my way upon receipt.

Ironically, during his HostingCon presentation last year, T1R founder Andy Schoepfer's key message was "don't be an island". It's important for web hosting providers to connect customers to external ecosystems like eBay and Amazon, because no e-business can thrive in isolation. Given T1R's Hosting 2.0 advocacy, Dan's reaction seemed... Analyst 1.0-ish. But towards the end of our conversation, he did promise that an upgrade is on the way. As a point of reference, Burton Group, Dan's former employer, has a great blog that links to external sources. Same goes for Forrester. And at least 220 other research firms, including T1R parent company The 451 Group. Raven Zachary, who leads 451's open source practice, is even on Twitter!

Anyway, I'll get off my soapbox now and back to Amazon. I think every web hosting exec needs to read Don's blog post - along with Robert Cichon's post on customer satisfaction metrics. Robert said a hosting provider has done a good job if (a) the company gets written testimonials, (b) customers refer other customers because they're happy with service quality, and (c) customers defend the company against negative remarks. Amazon gets three points based on Don's reaction. What's your score?

CNet says today's the day. Google will be launching a subscription-based version of Google Apps for Domains. It will include Google Docs and Spreadsheets integration, 10 GB of Blackberry-accessible Gmail, 99.9% uptime, and 24/7 phone support for $50 per user per year. Google will also provide APIs for migrating data, enabling single sign-on, etc. (Update: the service is live; a free trial is available until April 30, 2007.)

Google will continue to offer free versions for consumers (no premium features) and educational institutions (with premium features, but less storage).

Let's say I work at a company with 10 employees. Google Apps (which include website builder and group start page/calendar in addition to Gmail/GTalk and document/spreadsheet sharing) would cost $500/year. What would the same budget buy at GoDaddy?

* $43.08: annual cost of cheapest hosting plan. While this includes 500 email accounts, each offers only 10 MB of storage, which means I'll probably need...
* $29.99: email hosting for 5+ mailboxes. Unfortunately, this would only give me 2 GB of *total* storage. On the bright side, GoDaddy does throw in...
* $0.00 (19.99 if purchased separately): group calendaring for up to 15 users
* $9.99: cost of 1GB online folder for file sharing.

If I'm not familiar with FTP and HTML, GoDaddy's WebSite Tonight site builder will set me back another $12. Which makes the bundle above ~$400 cheaper than Google Apps. On the other hand, it doesn't include IM, or web-based word processing and spreadsheet apps, or a shared start page that's customizable with 10,000+ widgets.

If I were Bob Parsons, I might have other worries besides competing with Google for customers. A couple of years ago, Bob told the New York Times that:

"Try to call Google and actually talk to somebody. It's not their forte. Now, they could acquire that, but at the moment it's a problem I don't have to deal with, so I'm not thinking about it. If they do, we'll go to work."

It seems the time has come for GoDaddy to get to work, particular since it's looking to hire 560 new employees this year. While Bob handed out $1.3M in bonuses in 2006, as well as "new vehicles, trips, electronics and cash prizes, with taxes paid", such incentives might pale in comparison with stock options from a certain company in Mountain View that might also be in the market for experienced call center staff...

PS - Read on Techcrunch that GE and Procter & Gamble are Google Apps customers. The New York Times and InformationWeek both call Google Apps an attack against Microsoft, but the folks in Redmond aren't the only ones who need to keep an eye on this. See this Techmeme thread for more related discussions.

I think we should all give a big round of applause to the folks at The Planet. Today marks the official completion of their merger with EV1Servers, whose brand name is no more. After more than 8 months of hard work, they've consolidated their product lines, customer portals, forums... It's a really, really huge accomplishment. Congratulations, guys!!

Along the way, the company has also updated its focus. CEO Doug Erwin tells The WHIR and eWeek that his goal is to provide "on demand IT infrastructure for small and mid-sized businesses (SMBs)".

I asked VP Marketing Steve Kahan what "SMB" means. He said he would describe it as organizations that have fewer than 300 employees. I brought up the definition of a market in Geoffrey Moore's "Crossing the Chasm": a doctor and an engineer might both use oscilloscopes, but they don't belong in the same market because you can't use one single marketing message to communicate your ability to help achieve their very different goals. If we apply the same logic in the web hosting world, can SMBs be considered a "market" based solely on their head counts?

Steve said he thought so. He pointed to a Frost & Sullivan study which compared (a) SMBs who maintained in-house IT infrastructure against (b) SMBs who leased servers from The Planet. The total cost of ownership for Group (b) was 75% less than Group (a). This shows that self-operated IT doesn't make economic sense for his target audience. In other words, The Planet has thrown down its gauntlet against... on-premise hosting?!

For some reason I've always assumed that most SMBs already use outsourced providers for their web presence. On the other hand, how come Dell (as well as every other hardware vendor) has a "Small Business -> Servers" section on its website? What are buyers using these machines for? Why, IT infrastructure, of course!

I spent some time watching Dell's tutorials on setting up a server-based network for sharing applications and files. And I found this Channel Insider article which estimates that over one-third of US SMBs own server-based LANs. The Planet wants to convince SMBs that such IT infrastructure should run on its 100 Gbps network, which does sound much spiffier than the DSL connections at most of my friends' offices.

This raises a whole different set of question. For instance, are Doug and Steve betting against software-as-a-service? For instance, take a look at The Planet's Message Hosting section. It talks about 3000 GB of bandwidth per server, load balancing, shared storage devices... But why not forget about all this gear and sell SMBs Hosted Exchange with backup included on a pay-per-mailbox basis? Wouldn't that be more consistent with the "on-demand" tagline?

Anyway, I'm realizing that I've had a pretty incomplete view of web hosting. Having owned a web-based start-up, I thought web hosting providers' primary market was people like me - people who operate e-commerce sites, develop web apps or sell online ads. As it turns out, there are many more hearts and minds to be won - with many different possible approaches. So let's wish The Planet luck in its new direction. They might be trailblazing into a new market for you!

I came across the headline on TechMeme last night. Tony Ruscoe discovered a Google security hole that allowed him to steal someone else's cookie and access a wide range of services on the other person's account, including Google Docs and Google Analytics.

Tony posted complete details on his exploit here. The security hole was related to a just-released feature on Blogger. Google began supporting custom domains last week. Tony noticed that Blogger had somehow allowed a customer to enter "ghs.google.com" as his blog's domain name (possibly by mistake). He then signed up for a blog at "ghs.l.google.com". When his friend Philipp loaded this URL in his browser, Tony was able to "borrow" Philipp's Google cookie data:

"This can be easily achieved using some simple JavaScript that would read the cookie and place the data into a hidden form field element. The form could then be automatically submitted to another server which would be hosting a server-side script capable of logging the form data to a database, text file or send it in an email."

To Google's credit, it fixed the problem immediately. (Update: Philipp's thoughts on Google security are well worth reading.) Still, the incident reminded me of a recent conversation with Lance Crosby over at SoftLayer about why hosting is hard. Lance said that Google and Microsoft and Amazon have tons of smart people, but they work from a different perspective compared with web hosting companies' employees. When you're building and managing infrastructure for internal projects, you're serving a much more forgiving audience. For one, your co-workers will not comb your system for security loopholes. And they'll put up with many shortcomings in their development environment - because what choice do they have?

In contrast, once you open up your hosting platform to the general public, suddenly you're accountable for all kinds of issues that your internal user base would have overlooked. I think that's one reason why Dan Golding from Tier 1 Research said that Amazon hasn't developed competency as a hosting provider. They aren't used to thinking like one. Yet.

What does this mean? First of all, Lance is totally right. Contrary to what everyone else keeps saying, web hosts don't make better web hosts because of "better customer service". You're NOT ahead of Google because you offer 24/7 phone support. Instead, you have a bit of an advantage for the time being because your operations are optimized for maintaining a multi-user hosting environment.

But Google/Microsoft/Amazon (and other new players) are learning. In time, some - if not all - of them will improve their technology platform and update their operational procedures. Meanwhile, what are you doing to stay ahead of the game?

Nokia CEO Olli-Pekka Kallasvuo says there will be 4 billion mobile phone subscriptions by 2011. He says mobile content - ranging from music downloads to video to satellite navigation services - will drive rapid growth.

Oliver Starr from MobileCrunch is looking forward to a future of "4.5g phones with 100 GB hard drives, 10 megapixel cameras, GigE connectivity, and near field technology that connects to any PC".

The future is on its way: Cingular announced its MySpace partnership today. For $2.99/month, customers will be able to view/edit MySpace content via their handsets. Verizon Wireless recently signed a deal to offer YouTube content via its $15/month VCast service. GMail went mobile a few weeks ago. Sprint Nextel plans to include the Java app on some of its handsets.

But the market's still wide open. (Even if mobile net neutrality has already become an issue.) HipMojo says the worldwide mobile content market will grow from $16.7 billion today to to $78 billion as early as next year. (Ok, I'm not sure I believe this particular figure.) By 2011, CNet says cellphone porn alone will be worth $3.3 billion (up from $1.4 billion in 2006), GigaOm reports that mobile social networks will grow from 50 million members to 174 million, and Informa's market research shows that mobile advertising will be a $11.35 billion business (versus $871 million today).

Sun CEO Jonathan Schwartz recently pointed out that a majority of tomorrow's Internet users will access the web through mobile handsets rather than PCs. So isn't it every web hosting provider's responsibility to help its customers reach this audience by becoming intimately familiar with the fine points of mobile-enabling traditional websites?

PS - Oh yeah, hosting providers should make their own sites mobile accessible, too. It looks like SoftLayer's new mini-portal went over really well.

PPS - Just remembered that Caspio's app builder let's you create mobile forms. I've been meaning to check that out.

I came across this Park Associates press release via GigaOm. It says US revenues from Internet video will top $7 billion by 2010. (This significantly exceeds Gartner's April 2006 projection that the North American shared hosting market will reach $4.7 billion by 2010.)

Not coincidentally, Cisco announced a new business group last week called Media Solutions. Cisco execs tell CNet that their goal is to get closer to digital content creators. Yankee Group Analyst Zeus Kerravala agrees with Cisco's vision. The more relevant the company can be to content owners, he says, the more success it's likely to have.

Over the past decade, dedicated hosting providers have worked hard to maintain relevance within the shared hosting community through active participation on Web Hosting Talk, reseller programs for domain names, etc. Given Cisco's new initiative, Park Associates' projections, YouTube's enormous (and rather wealthy) audience, MetaCafe's rumored $200 - $300 million Yahoo! deal... might the online video market deserve some attention as well?

Update #1, via GigaOm - Cisco CEO John Chambers calls video a killer app: "Things like YouTube are just the baby steps of the impact video will have on networks." Are you ready?

Update #2, via eMarketer - US Internet video audience will reach 157 million by 2010. How much of their viewing activity will take place on your network?

eWeek reports that Wikipedia founder Jimmy Wales wants to facilitate the dissemination of free content by offering free software, free storage and free bandwidth.

Free usually means ad supported - but not in this case. Wales says his customers will be able to keep any advertising revenue their content generates. The new service will be called OpenServing.

Wikia, the commercial counterpart of the non-profit Wikipedia, recently received an undisclosed amount of funding from Amazon.com. When asked whether Amazon will supply web services for Wikia or OpenServing, Wales said potentially - but hosting wasn't a part of the investment deal.

MediaWiki will be the first free app available from OpenServing. WordPress and Drupal may follow, along with "hundreds of other software packages". Users will even have a single sign-on across all services.

Many hosting providers dismiss Google Apps for Domains and Microsoft's Office Live as proprietary platforms with limited functionality. Their customers want the flexibility to install whatever open source software they choose. In which case, might OpenServing's mission of creating a free software clearinghouse atop a free hosting platform represent a threat to traditional web hosting?

Bill Boebel, CTO of Webmail.us, is a happy Rackspace customer. But he recently moved his backup system to Amazon. Jason Hoffman from Joyent asked what this means:

Is it a success for Amazon or a failure of Rackspace? Or both? Will Amazon's offering mature to the point where it would make sense to run everything there? Will Rackspace wise up and begin to offer comparable services? Will we begin to do Grid Peering relationships where say our users or Rackspace's users could have network access from our servers to Amazon's without incurring a bandwidth charge?

Bill's response was, there's more to Amazon Web Services than its hosting infrastructure.

Bill was unhappy with his previous backup solution NOT because it's hosted at Rackspace. Off-the-shelf backup systems just aren't very efficient for maildir, where file names change frequently (to track read/replied/flagged status), causing the same email message to be backed up multiple times. Bill wanted to write a homegrown backup system. He did so at Amazon rather than Rackspace because:

At S3, we were able to just develop the maildir backup logic and some data cleanup logic. We skipped developing the backup storage system altogether. We coded the storage client, not the storage server. Initially we had planned on building both. But when S3 came out our thoughts quickly shifted...

Bill concluded that:

We're always looking for ways to build new stuff faster. In some cases this will mean building on top of services hosted by other companies, such as Amazon. In other cases it will mean building on top of open source software and hosted it on servers at Rackspace.

So if you share Doug Erwin's ambition of winning and keeping 100% of each of your customers' hosting business, it's going to take more than the fastest hardware and the bestest service. You'd also have to match Amazon's Web Services Stack, as illustrated by Read/Write Web:

I read about the latest McKinsey CIO survey on Nicholas Carr's blog. 61% of US and Canadian companies with over $1 billion in sales plan to adopt one or more SaaS apps in 2007. When McKinsey conducted the same survey in 2005, only 38% of the respondents had SaaS plans.

McKinsey says that CIOs are giving up on the notion that they must control 100% of their IT infrastructure. Instead, they are becoming more open to a "hybrid architecture" that combines internally and externally hosted components.

So I think Rackspace will see good ROI from its recent Salesforce.com certification. And I'm guessing other hosting providers will get involved with the Salesforce ecosystem next year. (ZDNet reports that in the last quarter, API transactions accounted for more than 50 percent of the 3.7 billion transactions on Salesforce.com's platform. They've got quite the ecosystem, and are expanding it with connectors and an outbound messaging API.)

Of course, SaaS apps developers are likely to be highly demanding hosting customers.

McKinsey says enterprise CIOs are very focused on maximizing vendor accountability. They're attracted to the idea of SaaS vendors being responsible for the infrastructure as well as the application, so that "they have nowhere to hide should something go wrong".

Vinnie Mirchandani goes a step farther. He says what large enterprises really want is Software as a Customized Service: "It is an aggressively negotiated software license and maintenance contract, combined with an on-demand outsourcing arrangement. The outsourcing would be a no-capex, utility computing, fractional resource, shared infrastructure, flex capacity with robust data center, connectivity, disaster recovery and security standards."

In the face of such high expectations, I doubt SaaS developers will be content with hosting providers who feel that their responsibility ends with replacing failed hardware.

In fact, take a look at how much more OpSource offers compared with traditional web hosting SLAs:

"Once your application is properly sized and delivered, there will be no increase in cost to you as new servers are added. You will pay per unit, with the "unit" is determined by you. As your application adds more units, you pay only for the number of units sold - meaning that you pay in relation to the success of your application. At OpSource, this pricing model creates a corporate culture that focuses our resources on driving success for our customers."

BTW, OpSource CEO Treb Ryan sold SiteSmith, his last company, for $1.36 billion. The deal happened before SiteSmith's first anniversary, putting Treb ahead of YouTube in terms of value creation velocity. Given Treb's track record, maybe we ought to keep an eye on his next pick?