Two weeks ago, Tier1 Research (T1R) hosted its 5th Annual Hosting Transformation Summit in Las Vegas. The overall perception from attendees was generally positive, thanks in large part to the nature of the networking that took place. There was kudos given to some of the highly informative presenters that took to the stage, not just from T1R, but the Microsoft and Digital Realty Trust, and shrewd insight into the markets from the investment angle, from DH Capital and Signal Hill. The short of it, is that at the end of the day the Internet Infrastructure space has not only outperformed major indices and conservatively 75% of all other industries, but hosting and datacenter providers have a positive outlook for the 2H09 and FY10 despite, or maybe because of continued economic uncertainty.
Managed Hosting Takeaways
- Cloud has Landed on Earth. This time last year at T1R's Hosting Transformation Summit, cloud services were mainly conceptual in nature. However, as cloud service providers have begun providing meaningful services to customers, it is apparent that cloud services (or rather the concept of pay-as-you-go and on-demand scalability) is a delivery model in high demand and is likely to be a permanent addition to the hosting landscape. For 2009, cloud storage services will be the big winner in cloud.
- Managed Hosting Providers Positioning for Economic Recovery. While the recession has fueled tremendous cloud growth, the more traditional managed hosting services have been in a holding pattern during 2009 with new bookings not occurring until 3Q. From a strategic perspective, the managed hosting companies that are positioning themselves for the post-recession economy - in terms of innovative products, strong marketing and efficient back office operations - will emerge as leaders in the space and those who don't will risk falling behind.
- Sector Interested in Mergers & Acquisitions (M&A). Although both M&A deal volume and size have been down drastically in 2009, primarily due to lack of access to capital, the sector is ripe for consolidation and the interest level among providers in the sector remains high. Given the sector's strong fundamentals and proven performance, T1R would encourage equity shops and banks to consider the Internet Infrastructure space in 2010.
- New Customers have Stickiness. Overall feedback from providers was that the new customer acquisition occurring as a result of the recession appears to have "stickiness," in that as providers have worked closely with new outsourced customers to problem solve during a difficult period, the new customers have already begun taking down incremental services or are pre-planning near to mid-term service expansion. The SMB market, as opposed to large enterprise, remains the sweet spot as an overall larger opportunity.