Category: CommunityAnalyzing Market Opportunities for SMB Hosting Providers: Levers of Growth

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This guest post was submitted by Brad Canham, VP of Sales and Marketing at Dotcom-Monitor, a website and web application monitoring company. He has been working in the tech space since the days of the dotcom boom. Brad is an avid triathlete and marathon runner, wine enthusiast, and family man. You may spot him at any number of web performance conferences across the country.

Levers in the Hosting Market: Managed Services

Switching to Cloud Hosting

Photo Credits: Kevin Galens

The weather at HostingCon 2013 in Austin, TX was as hot as the train brakes I used to hear creaking and popping when a heavy train full of grain groaned to a stop during mid-August in my northern Wisconsin hometown. The hottest topic at HostingCon? “The Cloud,” of course, but at times, the Cloud, was presented as simply a matter of pulling a railroad lever and switching a train to a different track.

Sometimes, though, hot things like the Cloud can over-shadow equally important things, like which market opportunity track a small-midsized business (SMB) hosting provider should be headed down. With that in mind, simple levers – with their fulcrum, load, and effort components – are helpful models for thinking through a few of the strategic topics noted at HostingCon 2013, the Cloud, and the hosting market in general.

Simple Levers: Positioning, Market opportunities, and Resources

Simple Levers: Positioning, Market Opportunities and Resources

For AWS, low cloud prices are the fulcrum, sales & marketing are the effort, and the load is cloud customers, resulting in cash flow and market share. What does your lever look like?

As an example, lets look at “the Cloud” in general and Amazon Web Services (AWS) in particular through the lens of a lever. On one hand, AWS positions low price cloud services at the Fulcrum (pivot point) of the lever, devotes sales/marketing/brand resources as the Effort, and targets a large market opportunity, Cloud customers, as the Load to lift.  Result of this simple levering action?  Cash flow. Market share. (Watch for AMZN Q2 results conference call, July 25, 5 pm ET). Whether you believe its sustainable in the long-term is another question, but the AWS “lever” is an undeniable force in the market.

On the other hand, nearly every SMB hosting provider at HostingCon was talking about adding “the Cloud,” marketing its cloud services, or creating a hybrid of the Cloud in some form. The net result of everyone having ‘the Cloud” is that SMB host providers will still have their primary problem, which is focusing on the right market opportunity with the right resources.

Positioning SMB hosting providers at the Fulcrum

With that in mind, there are additional simple levers which are most effectively leveraged only by SMB hosting providers. Several components of these levers were mentioned at HostingCon and in various industry discussions.

SMB host providers have an opportunity to position their uniqueness to take advantage of market opportunities occurring beyond the cloud.  Or, as Keren Rubenstein (VP Sales LeaseWeb USA) noted in his blog post on HostingCon 2013 “Dare to be Different”:

In an increasingly competitive industry, with companies such as IBM, Verizon, and others crossing borders to new niches – standing out is key. Start by evaluating the market and determining where the open space is, then move there to own it. Various companies are successfully employing this strategy by adjusting their products and services. Some add managed services to support their product service portfolio, while some move into niche hosting by creating product offerings geared towards a specific segment, such as music platforms, or as Ditlev Bredahl pointed out, segments for wine drinkers and pet owners.”

The key advantages SMB host providers have are niche characteristics, things like hyper-local, vertical market focus, and relational expertise. However, these characteristics don’t scale well, meaning large hosting providers typically can’t offer what SMB host providers can excel at. The first step to executing on that niche strategy for SMB host providers is, as Steve Jobs once said, getting “your thinking clean.”

Targeting the Market Opportunity: Taking on the right Load

“That’s been one of my mantras — focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” -Steve Jobs

Granted, SMB hosting providers aren’t interested in moving “mountains,” but the point of a lever is to move something.  Oftentimes, prior to getting your think clean, it means getting dirty by researching various niche market opportunities and taking risks.

Case in point, a bit of research:

  • Many client companies are rapidly moving from self-hosted, in-house licensed software to a wide variety of web applications. As noted in a new Forrester report, the movement to applications is immense. “Software is eating the world” with huge investments in cloud-based implementations such as SaaS, while legacy software is “languishing.”
  • Phil Stih, Principal at Structure Research, noted in his overview of the 2012 Hosting Market that client companies are increasingly comfortable with moving their applications off-premises to a hosted solution.
  • Igor Stenmark, Managing Director at MGI Research, noted at the Cloud Innovators Summit that there is a Cloud “sweet spot” for business unit apps that are “loosely coupled” to a business – for example Salesforce – versus a tightly coupled application, such as a legacy (ERP) system.

So, how might a SMB hosting provider position itself to take on this market opportunity (load) of companies using applications?

With that type of application scenario in mind, there are entire ecosystems of niche-specific web application tools that hosting companies could provide as part of a managed services approach. Many SMB hosting providers can shift their positions slightly (fulcrum) to become hyper-specialized, add additional managed services focused on specialized applications (effort), to accommodate a market opportunity (load) of companies with growing use applications. The result? A SMB hosting provider that can position itself further as an indispensable niche hosting provider (essentially the client company’s outsourced IT department), adding to Average Revenue Per User (ARPU), and increasing customer term length.

Aligning Effort with the Market Opportunity

With a million angles to look at and things to do, how might SMB hosting providers select application-focused managed services and platforms that align with market opportunities? Phil Stih in his 2012 Hosting Market presentation provided a list of criteria for client companies to consider when selecting a niche hosting provider. In many ways, that list of criteria is a good starting point for SMB hosting companies to evaluate managed services for those client companies:

Hosting Company Cloud Crossroads

Photo Credits: Lauren Mitchell

  • Best of breed (web application tools that have niche expertise by industry)
  • Agnostic (not wedded to specific tech)
  • Scalability (volume capacity and discounts)
  • Specialization (best practices)
  • Tools and platforms that create efficiencies (platforms, like Interworx; uptime tools, like Dotcom-Monitor)
  • Optimize (managed services that augment IT efforts, but don’t replace)
  • Costs (outsourcing a SaaS service versus in-house)

Pulling Levers in the Cloud

At HostingCon 2013 there was a lot of speculation about large changes and trends in the hosting industry and strategies for positioning for those changes. The characteristics of simple levers are an interesting way to look at market opportunities.

Web applications continue to grow as a market opportunity that SMB hosting providers are positioned to take advantage of. Aligning managed services with client company needs by vertical, location, or by specialty, is a way to position as a niche provider. There are certain selection criteria that can be helpful in aligning a SMB hosting provider with the needs of client companies. While its important to both keep an eye on hot topics, its also important to think clearly about pulling the right levers, taking the right track, and positioning for opportunities.

 

CloudHostingHostingConMarket OpportunitiesStrategy
Jul 25, 2013, 12:46 pmBy: InterWorx (2) Comments
  1. wencesg: Hi Brad, interesting insights. I was an Executive at a European leading hosting company and left the company back in 2008 pursuing the idea of creating value added services and solutions for hosting companies in the marketing area. Is interesting to see that step by step, hosting companies are moving towards different niches. We are working with several providers targeting ebusiness for SMBs and see how big the opportunity is but also we face a challenging culture and management change. Maybe you and the readers would be interested in following our opinion about web marketing tools for hosting companies in post like this one http://blog.marketgoo.com/2013/10/17/why-web-marketing-tools-are-important-for-hosting-providers/ Thank you. Wences. MarketGoo
    October 21, 2013 at 2:48 pm
    Reply
  2. Major Webhost Outage | Bluehost, HostGator and HostMonster Go Down: […] For further details on how SMB hosting providers are leveraging this niche approach see an article, written  earlier this month by Brad Canham, VP of Sales and Marketing at Dotcom-Monitor, in a guest blog piece for InterWorx, Analyzing Market Opportunities for SMB Hosting Providers: Levers of Growth. […]
    August 2, 2013 at 6:43 pm
    Reply

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