In the keynote on Wednesday morning at cPanel Conference in Houston, Philbert Shih, founder and managing director at Structure Research, gave an overview of the industry, and the trends he sees in the market today.
He started by going over the publicly traded companies, which he says helps give an indication of the health of the sector. Rackspace is a top performer even at this size with growth in the high 20 percent. iomart is also growing at roughly a 20 percent rate.
Colocation is growing at a slower rate than hosting, with growth rates in the high teens, low 20s.
EBITA growth rates are around 20 percent higher than revenue growth rates, and Shih says this is a reflection of the ability of companies to scale.
Wholesale colocation is growing slower than colocation, a theme that was picked up in second quarter of this year, Shih says.
In the private sector, SoftLayer has 25 percent revenue year over year, while LogicWorks and Lumison are in the 20 percent range.
Revenue year over year at PEER 1 is 23.4 percent. Shih says a lot of split companies are seeing more growth in hosting as opposed to colocation.
Rackspace is growing at around 30 percent, while FireHost is growing at 176 year over year. BlueLock, a relatively new company, is growing at 50 percent.
Overall, colo is growing at around 20 percent, hosting is between 23-27 percent, mass market hosting at 10-13 percent, and cloud is growing at between 40 and 60 percent.
For split companies, managed hosting is growing faster than colocation. The customer mix and revenue mix slants that way, Shih says.
Cloud is a big part of the mix as well, Shih says. Most companies are mixed companies offering 3 or 4 types of infrastructure services.
Everybody is in the single digit range in terms of cloud revenue growth, Shih says. It is still a small part of most businesses, as many companies have only had a cloud out there for six months or a year, but it will grow.
A lot of growth is coming from existing customers. Shih says boosting the ARPU of existing customer base is a growth trend. For example, SoftLayer discloses its server and customer count in its quarterly reports. It shows that while the server count is going up, the customer count is stable.
Shih says that this industry is past the bottom of the recession, and the rebound has been weak and choppy, and the second quarter reflected that. However, the reasons investors, media and analysts are interested in this space is the inherent stability of the industry. Part of that is the nature of the business itself, but the other part is that the ARPU growth has offset the weak economic environment.
In what is perhaps a controversial stance, Shih says AWS has done a lot of good for the sector, and that cloud providers like Rackspace and AWS are not the biggest competition for web hosts.
In the bad economic environment, the AWS cloud model has resonated with CTOs in the enterprise with tighter budgets.
With the conversation around cloud, web hosts are getting attention as enterprises are more interested in the IaaS business.
The competitive hosting landscape used to be pureplay versus pureplay, but now it has become a lot more complex as companies like Best Buy and Dell have entered the hosting space.
The cloud is starting to separate quickly, Shih says. AWS has massive scale and a different level of resources than those available to web hosts and service providers. The main competition for hosts is the in-house IT decision maker, not the big cloud players.
Overall hosting trends that Shih sees include automation, unified delivery, a great user experience, on-demand procurement, DR and backup.
For example, while Rackspace used to focus on the human element of its customer service, or Fanatical Support,¬† it is now more focused on what it can deliver with technology.
For shared hosting, the cost of acquiring customers is higher, and the freemium model is a challenge. Intuit also exited the shared hosting business recently. Shih thinks that this is because though this is a technology business, more importantly, it’s a service business, and some companies haven’t been able to make that transition.
While the shared hosting sector heyday is over, Shih says “it’s not a doomsday scenario.”
“Change or die,” he says. “You can’t continue to run your business the way you have for 10 or 15 years.”
“You want to identify what’s working, but what’s not, you need to change,” he says.
Talk back: What are you seeing in terms of revenue growth? Are you seeing the same hosting trends in your business? Let us know in a comment.