Hosting market warning: traditional providers at risk

Risk illustrated as a meter

Before everyone started attaching “cloud” to anything in a datacentre, before IaaS and SaaS, before ASP and almost before browsers, there was web hosting. With more than 600m websites worldwide, hosting websites and web applications are one of the top infrastructures workloads delivered by hosters, large and small. In fact, this past year alone some 300,000 new web servers were set up in datacentres around the globe.

But there are three trends that are converging to put traditional providers of hosting infrastructure at risk.

1. Most traditional infrastructure providers are losing web server share to AWS, Linode, and Digital Ocean. As an example we looked at the growth of new web servers across AWS, Linode and Digital Ocean compared to the rest of the market. These three companies went from capturing only five percent of new web servers four years ago to capturing 31 percent of new web servers last year. At the same time, the share of installed servers across the top 250 infrastructure providers has shrunk by 12 percent.

2. Customers who identify as web pros are growing rapidly while customers who identify as web hosters are declining. If you believe that Google Trends is a good indicator of broad market shifts, then you can see that searches for hosting terms such as “Web Hosting,” “Ecommerce Hosting,” “Dedicated Server” and “PHP Hosting” have all dropped off a cliff in the last 5 to10 years. Meanwhile, terms like “WordPress Hosting,” “Shopify,” “Linode,” and “Web App Hosting” have all skyrocketed in that same time period.

3. SMBs are maturing in their use of web presence as a business tool and are looking for higher value and more managed services from a web professional. They are seeking out web designers, web developers and digital agencies for their web presence needs. Structure Research estimates that web professionals influence 160,000 web servers per year, yet most providers of web infrastructure are not targeting this critical part of the value chain. In fact, many hosters still have market offers of “good, better, best” that have not substantially changed in the last ten years.

To avoid getting blindsided by these trends and maintain or grow your share of the market, there are three key strategies you need to implement:

  • Create offers targeted at specific audience segments to help them understand what to buy.
  • Create solution stacks that align to service consumption by the target audience.
  • Deliver a more managed service that supports the needs of each audience segment.

Some examples in the market where we see these strategies being executed include: GoDaddy’s acquisition of Media Temple to specifically target web professionals; the rapid growth of WP Engine, who recently raised $15m in capital to accelerate growth; new managed service offerings from Linode and clear value propositions for developers by Digital Ocean.

At Parallels, we believe solutions based around distinct audience segments will give each audience access to the web management toolset that makes perfect sense for them. So hosters need to focus on:

• Web administrators including IT professionals and website hobbyists

• Web application developers who build and deploy web apps and games online

• Web professionals including web designers, web developers and digital agencies

• Traditional shared web hosters

By taking this entirely different approach to customers, providers can create profitable, targeted infrastructure solutions and design an audience-appropriate stack, resulting a ready-to-buy solution rather than a configuration challenge.