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HostingCon 2014: Is It All Coming to an End with Philbert Shih, Structure Research

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In the second session of the issues and trends track at HostingCon 2014, Philbert Shih, managing director of Structure Research, talked about whether the hosting industry as we know it is coming to an end.

The short answer is no; but the long answer is a little bit more complicated.

While some of the larger companies are doing well, shared hosting and managed hosting have slowed down over the last 3-5 years. Rackspace has grown 16.2 percent, while Internap has grown 17.6 percent.

The messaging space, which includes Hosted Exchange and email service providers, is growing at a steady pace. Open-Xchange is growing the fastest in this market.

Overall, the industry segment that has shown the most slowing over the past few years is colocation. Managed hosting is outpacing colocation growth, while cloud is the fastest growing industry. Rackspace’s cloud division is growing faster than managed hosting, while Firehost has doubled its cloud hosting growth.

“There are certain parts of the market that may not be as healthy for hosting companies to go after,” Shih says.

In terms of year-over-year growth, colocation is growing at 13-17 percent, managed hosting at 18-22 percent, mass market hosting at 7-11 percent and cloud at 50-60 percent.

Shih agrees with GigaOM research director Ashar Baig who has seen new customer acquisitions slow down over the years.

“I think the sector has meaningfully slowed down,” Shih says. “The rates of growth…we’re definitely not seeing what we used to.”

Aside from customer acquisition, there are several factors contributing to the slowing growth rates. There is less low hanging fruit, and automation has made it easier for customers to buy only what they need. Shih says that overall there is less overbuying as organizations are being smarter with outsourcing spend.

“Despite slowing topline growth I think the sector has seen a lot of profitability,” Shih says.

There is no doubt that the sector is in a “much different condition” than even only a few years ago, Shih says. The shared hosting space, for example, is more about the web presence including social media sites like Facebook. “Web presence is fragmented,” he says.

Another trend that Shih notes is the movement of hosting providers to start building value on top of infrastructure, and a shift towards managing AWS.

About the Author

Nicole Henderson is the Editor in Chief of the WHIR, where she covers daily news and features online. She has a bachelor of journalism from Ryerson University in Toronto. You can find her on Twitter @NicoleHenderson.

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