Beyond hosting: 451 Research tracks the growth of the managed services market

The traditional hosting industry is in the midst of change. Many technology vendors and service providers are realizing that they must adapt their approach to hosting and cloud services to take advantage of emerging requirements for managed services. At the same time, security and compliance burdens complicated by changing political landscapes, legislation and regulations are consuming enormous amounts of time and resources. For these reasons, 451 Research has launched its Managed Services & Hosting channel, combining the core research provided by the previous Service Provider channel with coverage of emerging managed services and channel ecosystem analysis.

The 451 Take

Managed services and managed hosting are rapidly emerging as key differentiators in an increasingly complex landscape of technology vendors, partners and distribution channels. But success will not come from simply adding further 'as a service' components to existing portfolios. The best-positioned service providers are those that can meet the desire for high automation, rapid provisioning and services that address complex enterprise needs while retaining high-touch delivery and/or serving strategic regional and vertical markets. 451 Research's Managed Services & Hosting channel provides insights into managed security, storage, disaster recovery, application services and hosting to highlight the opportunities for technology vendors and their service provider partners.

The Managed Services & Hosting channel focuses on the global managed services and hosting market. It tracks IT managed services providers, web and applications hosting firms, and content delivery networks. This includes coverage of services, market sizing, M&A activity and factors that affect the strategies for these competitors. The Managed Services & Hosting channel is designed to provide ecosystem and trends analysis for technology vendors, market development insight for global and regional service providers, and competitive dynamics analysis for financial investors.

A key trend is the changing nature of providers offering managed services and hosting capabilities. While companies focusing on domain, SSL and basic web hosting have made acquisitions or developed in-house capabilities since the mid-'90s to include network services, VPN server management, monitoring and support, others have taken a different route. International specialists have focused on super-scale utility and price, telecom carriers have leveraged network ownership domestically to provide packaged offerings, technology companies have diversified into higher-margin service offerings and partnered with other providers to offer managed service bundles, and systems integrators and outsourcers are providing hosted infrastructure and managed services for their partner base to sell into SMBs.

In addition, technology vendors and service providers are subject to the work of lawmakers worldwide and to the ways in which those laws interact across borders (especially those operating internationally). The Managed Services & Hosting channel will further 451 Research's coverage of internet governance, data protection and compliance – looking at emerging issues likely to affect the service provider market, the constituencies involved in those discussions and the potential impact of those decisions on the internet infrastructure market.

The launch of the Managed Services & Hosting channel will provide deeper coverage of the activities of the technology vendors and service providers in the areas listed below.

Managed hosting

The opportunity for managed hosting services continues to grow, driven by the requirement for 'full service' capabilities beyond the basic management of servers and provision of backup and restore services. Workload size, complexity and diversity have seen the need for more advanced patching, monitoring and incident management offerings above the level of the operating system (OS). This increasingly includes line-of-business (LoB) ERP systems, high-availability database clusters and email servers, for example. For many midmarket enterprises, managed hosting is taking a bigger slice of general IT administration than ever before as companies seek to take complexity out of their infrastructure and focus on application provision and stakeholder data requirements.

Security and compliance

Security and compliance are becoming more challenging and complicated despite the increasing number of security tools, vendors and providers available in the market today. Protection against ransomware, distributed denial-of-service (DDoS) attacks and automated/botnet-driven attacks are key demand drivers. In addition, ever-changing political landscapes, legislation and regulations are making the difficult task of security even more arduous. Privacy Shield, the EU's General Data Protection Regulation and post-Brexit concerns are just a couple of the issues that enterprises must address in order to continue to serve their customers and avoid hefty penalties.

Managed services

The managed services market is in flux as enterprise adoption of external, managed and unmanaged infrastructure services goes mainstream. There is a significant opportunity for service providers to stake ground in a number of key enterprise verticals driven by overall economic pressures to adopt cloud-style IT service delivery. The market is becoming increasingly diverse and multilayered, with providers offering managed security, managed backup/disaster recovery and other services. There are plenty of service types, but the market faces disruption from privacy and data protection legislation, as well as from the pace of service adoption.

Web and application hosting

The web and application hosting market covers an extensive range of services, from basic domain registration and management through website creation, hosting and dedicated server/VPS management. Price pressure remains high, in particular as a result of competition from off-premises/multi-tenant services. The market overall in North America and Europe is quite mature, but in other areas such as Eastern Europe and Asia, a volume market has existed for only a few years. Despite this, outside the enterprise sector, a large proportion of SMB firms still have little more than a basic web presence and are seeking to benefit more from e-commerce capabilities. E-commerce is one of the most significant use cases for hosting infrastructure, representing a growth area for infrastructure providers and a higher-value tier of users, and e-commerce workloads tend to have exacting requirements for performance, uptime and specific supporting technologies (SSL certificates, a means of accepting payment).

Content delivery and web performance

Growing dependence on web-based applications is highlighting the need to ensure application performance and availability. The CDN market has been targeting R&D and VC money for further improvements in performance and delivery of dynamic content. One area of particular momentum is mobile networks. A variety of startups are targeting mobile content delivery specifically, and 451 Research will cover these companies and their potential impact on the CDN market – and on the services wireless carriers provide – in the coming months. Other areas of research focus include the use of CDN infrastructure through APIs – an area that hasn't always been a strong suit for vendors in the market – and a closer examination of vendors in the DNS infrastructure services space and how they fit into the application performance landscape.

Partner ecosystems and business models

The ability of technology vendors and service providers to benefit from the growing opportunity for managed services and managed hosting will depend in large part on their partnering strategies and capabilities. Sustainable run-rate revenue, realistic time to market, commercial partnerships that deliver results and an understanding of organizational change are all essential requirements for a cloud technology or services business. For service providers, differentiation is important: not enough, and competition will be broad and erosive; too much, and niche markets may be too small to sustain more than a 'hobby' business. At the same time, for technology vendors, partner dependency can be hazardous unless distribution partners and strategic alliances can build out a balanced ecosystem. For both, time to market is critical, particularly for new service lines; vertical-specific offerings may offset some of this, but not much. Disruption is potentially rife and needs to be taken seriously: skills gaps, cultural resistance and other non-technical reasons can inhibit growth and slow well-funded and strategic initiatives. The Managed Services & Hosting channel will outline best practices and practical activities that can mitigate this.

451 Research will continue to provide information, insights and advice to clients in the field of managed services, hosting and partner ecosystems.

For more details, please see our recently updated Research Agenda on the Managed Services & Hosting channel dashboard.



Rory Duncan

Research Director, European Services

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