Hosting Providers: Flip Your Business Priorities

Something strange happened on the road from on-premises software to hosted solutions. Indeed, hosting companies somehow think they'll wind up competing with VARs and differentiating on price. Huh?

Consider this factoid: 13 percent of hosting providers think VARs are their biggest market competitor -- nearly equal to the competitive concern about Amazon (at 15 percent) and Google (17 percent), according to a ScienceLogic survey of HostingCon attendees last year in Austin, Texas.

Here's the reality: Most VARs have no plans to build their own data centers because they lack the funds, staff and time to do so. Instead, VARs are moving their own infrastructure -- and customer infrastructure -- to third-party hosting providers and cloud providers.

Rather than fearing VARs in any way, hosting providers should consider VARs to be voters in an IT election. And hosting providers should be campaigning to win VAR votes -- earning reseller loyalty and keeping channel business away from Amazon, Google, Microsoft Azure, IBM SoftLayer, Rackspace and other big market players.

Did They Really Say That?

Here's another mystery from the hosting world. Hosting providers say the three biggest threats to their business are price wars (41 percent), cloud giants (26 percent) and commoditization (26 percent). Roll those three factoid up, and  93 percent of hosting providers are worried about cloud giants squeezing their margins, according to the ScienceLogic survey.

Now here's the ironic twist... 23 percent of hosting providers say they differentiate on price. And that begs the question: How do you differentiate on price during a price war? Answer: You don't.

It's All About IP

Instead of getting trapped in a price war, hosting providers must look for ways to develop your own intellectual property -- which generates a market premium. In many ways, hosting providers must flip their approach to business. Consider this:

  • 39 percent of hosting providers say they differentiate on reputation and support.
  • 20 percent say they differentiate on application offerings, self-service control and tools.

Those figures should be inverted -- with a far heavier emphasis on applications, self-service and automation.

It's Also About ISVs

So, how can a hosting provider deliver an impressive portfolio of self-service applications? Some of that involves buying or writing automation tools -- your IP development. The other requirement is ISV (independent software vendor) relationships.

That's right: ISVs are the next-generation channel partner. Get them on your hosted platform and they'll consume more and more of your compute and data center resources -- for a greater and greater fee -- as more end-users embrace the applications.

Alas, Amazon has a big lead in the ISV market -- attracting thousands of software partners onto Amazon Web Services. Microsoft Azure also is coming on strong, But there's still time to build relationships -- especially with ISVs that are worried about Amazon's growing influence around how applications are built, managed and sold to customers.

A good place to look for partners: The Oracle ISV market, where thousands of applications written for Oracle's database are now looking for hosting providers. Oracle may pull some of those partners into its cloud -- but not all ISVs want to get into business even deeper with Oracle.

So, what are the key takeaways from this article? Hosting providers have to:

1.  Stop fearing VARs and instead treat VARs as voters. Make them vote for your platform.

2. Stop trying to differentiate on price and manual support. Instead, differentiate on automation and software -- innovate to keep your margins high.

3. Start working far more closely with ISVs, many of which need hosting partners to help them escape their client-server legacies.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.