As more businesses embrace online communications and digital media, there is a growing need for hosting and cloud services that not only deliver 24/7 support, but are able to respond immediately to rapid and unpredictable shifts in demand. The increased speeds and reach of federal government's NBN (National Broadband Network) is likely to drive this even further.
At the same time, falling CPU prices, along with improved tools for virtualisation, are leading to the commoditisation of hosting services - forcing providers to find creative points of differentiation.
There are over 1000 hosting companies in Australia, ranging from lone servers chugging away in suburban garages up to sophisticated, large-scale operators.
Glenn Gore, chief technology officer with Melbourne IT, says the last year has been especially exciting for the hosting market.
"The industry has been going through the most rapid change period it has ever seen," he says. "We are moving to an on-demand, pay-as-you go model, which represents a big cultural shift for a lot of sales teams; the customer is in control more than they've been."
|Glenn Gore, CTO, Melbourne IT|
Shane Baker, general manager of sales and marketing at Hostworks, says that the 24/7 nature of the digital media industry in particular has been a major driver for the hosting market over the last few years.
"That's where we've seen massive change, in the evolution of how consumers are using digital content," he says. "We've got to be on our game every minute of every day. You can no longer just sit back and take a static approach."
"What you want in a real cloud environment is a portal where resellers or end users can dictate what they want," says general manager Adam Chicktong.
He says companies that don't move in the direction of self-provisioning will soon find they have little to offer clients.
"The Catch-22 for customers is that by taking on greater control themselves they have a higher level of accountability and responsibility," Gore says. At the same time companies are struggling to find the budget to pay dedicated staff.
This creates opportunities for resellers to provide additional physical or virtual hosting capacity, as well as consult to help companies improve their efficiency.
The increased commoditisation of IT resources drives the hosting market, by forcing providers to differentiate their services.
"In everything from the cost per CPU up to managed services, the price per unit has fallen dramatically, by as much as 50 percent," says Hostwork's Baker.
Melbourne IT's Gore says that as hosting companies have been forced to compete aggressively on price, the market is now at the point where there are gaping holes in terms of service levels.
"There are certain parts of the hosting market that have been commoditised very heavily - prices have gone down to extremely low levels," he says.
The downside is a lack of genuine SLAs, which often leads to technical unreliability and poor customer service.
"There's a lot of noise from people who say, ‘Hey I'm going to get into the hosting business'," Gore says. "But you need to ask yourself how you are solving a problem for a customer."
ICO technical director Greg Small says the company is currently eyeing what it sees as a gap in the mid-tier market. Small says there is growing demand for extremely high uptime and availability. "We can guarantee you won't go down more than 26 seconds in a month," he says.
Companies may value advanced security features for data but also on-premise security such as fire and water protection.
A provider's financial security will often be important, especially for companies contemplating long-term contract arrangements, while details about a provider's technology and expected investments could also influence decisions.
Next: Rising costs