Al Sadowski, Research Director Liam Eagle, Senior Analyst Carl Brooks, Analyst Jim Davis, Senior Analyst Selling generic technology resources is no way to differentiate in a competitive market. Service providers catering to large and small enterprises are finding ways to stand out by offering compelling solutions, often managed, to solve business problems. As mobility threads its way into everyday activities, the performance of these hosted solutions is even more critical.
2015 451 Research, LLC | W W W . 4 5 1 R E S E A R C H . C O M
ABOUT 451 RESEARCH
451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to more than 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group. 2015 451 Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. N E W YO R K
SAN FRANCISCO
LONDON
BOSTON
20 West 37th Street
3rd Floor New York, NY 10018 P 212-505-3030 F 212-505-2630
140 Geary Street
9th Floor San Francisco, CA 94108 P 415-989-1555 F 415-989-1558
37-41 Gower Street
London, UK WC1E 6HH P +44 (0)20 7299 7765 F +44 (0)20 7299 7799
1 Liberty Square, 5th Floor Boston, MA 02109 P 617-261-0699 F 617-261-0688
ABOUT THE AUTHOR
AL SADOWSKI RESEARCH DIRECTOR
Al Sadowski is Research Director for the Service Providers practice at 451
Research. For more than 20 years, Al held management positions in software development, network operations, product development and product management at AT&T, Global Crossing and Level 3 Communications. He led global teams to develop customer care applications, set cloud strategy and manage a colocation product portfolio, and he launched multiple networkbased managed services for the enterprise sector. C O PY R I G H T 2 0 1 5 4 5 1 R E S E A R C H . A L L R I G H T S R E S E RV E D.
II
EXECUTIVE OVERVIEW
Key Findings Over 35% of enterprises are moving to hosted software and SaaS models for application deployments in the cloud. The majority of the money spent on cloud services will pass through various channel partners, not directly to service providers. Managed services represent the clearest opportunity to add value (and margin) for the group of service providers that is syndicating these services. Service providers agreeing to source public cloud from the hyperscale vendors on behalf of their customers is becoming almost commonplace. OpenStack product and distribution retailers will grow faster than OpenStack service providers as enterprises focus on private cloud. More datacenter providers are marketing cloud exchange offerings, but not all enterprises understand how to adapt their network architectures to the hybrid cloud era. There is further stratification in the CDN market between traditional CDN providers offering caching and acceleration services and providers that bring to market network-as-a-service offerings.
C O PY R I G H T 2 0 1 5 4 5 1 R E S E A R C H . A L L R I G H T S R E S E RV E D.
III
EXECUTIVE OVERVIEW
Executive Summary INTRODUCTION The state of the managed infrastructure market remains robust. Traditional hosting and infrastructure as a service will grow from a $60bn market in 2015 into a $70bn market in 2016. There is ample opportunity for new and increased revenue; it is a market set to double in size by 2019, and all signs point to a steady continuation of this trend. There are clear indications that the traditional, clearly divisible market segments that make up the hosting world are rapidly collapsing into each other and boundaries are being erased between operationally distinct types of hosting businesses. Customers are moving workloads from traditional shared, virtualized and dedicated infrastructure products to increasingly specialized infrastructure and application environments, including IaaS and SaaS. Many of the service providers seeing the most success from these product categories and customer segments are newer entrants to the market. Service provider implementation of managed services and alternative technology solutions including OpenStack are seen as potential points of differentiation.
451 Researchs 2016 Service Provider Trends
Source: 451 Research, 2015 Managed Services Will Become a More Modular, Ubiquitous Component of Service Delivery Across Service Providers and Cloud Infrastructure The Channel Market for Cloud Will Be One of the Most Important Avenues for Growth OpenStack Momentum for Private Cloud Deployments Will Continue To Outpace Public Cloud Use Cloud Will Envelop Networking More Thoroughly, from the Datacenter to the Enterprise
Winners Providers with the broadest service sets
Tech vendors and providers that find
channel partners; partners and resellers that can offer higher-order services Service providers with a cohesive hybrid IT delivery model
Losers Service providers that limit their customers options
Vendors and providers that dont find
partners or niches; those that arent flexible
Proprietary-only hybrid solutions
Global CDNs with services that simplify
Smaller CDNs that fail to match the features
enterprise-to-cloud networking
and performance of market leaders
Network service providers that provide onMobility Will Push Security and Performance Services Together
demand connectivity to cloud ecosystems
Vendors without a solid understanding
and mobile device security as a service; CDN
of their customers needs
vendors that can refashion their offerings
Applications Will Increasingly Define How Web Hosting Service Providers Go to Market
Service providers that understand
Web hosts that dont adjust to
their user base
changing user expectations
C O PY R I G H T 2 0 1 5 4 5 1 R E S E A R C H . A L L R I G H T S R E S E RV E D.
IV
EXECUTIVE OVERVIEW 20 1 6 T R E N DS I N S E RV I C E P ROV I D E R S
M E T H O D O LO GY Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the companys core intelligence service, 451 Research Market Insight. Forward-looking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. Emerging technologies and markets are also covered in additional 451 Research channels, including Business Applications; Cloud and IT Services Markets; Data Platforms and Analytics; Datacenter Technology; Enterprise Mobility; European Services; Information Security; Mobile Telecom; Multi-Tenant Datacenters; Networking; Service Providers; Storage; and Systems and Software Infrastructure. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as ChangeWave, Voice of the Enterprise, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the Web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: www.451research.com.
C O PY R I G H T 2 0 1 5 4 5 1 R E S E A R C H . A L L R I G H T S R E S E RV E D.
EXECUTIVE OVERVIEW
Table of Contents TRENDS1 Trend 1: Managed Services Will Become a More Modular, Ubiquitous Component of Service Delivery Across Service Providers and Cloud Infrastructure
Figure 1: Managed Hosting Is Among the Fastest-Growing Segments of the Hosting & Cloud Market 2 RECOMMENDATIONS 2 WINNERS 2 LOSERS 2 Trend 2: The Channel Market for Cloud Will Be One of the Most Important Avenues for Growth
RECOMMENDATIONS 3 WINNERS 3 LOSERS 3 Trend 3: OpenStack Momentum for Private Cloud Deployments Will Continue To Outpace Public Cloud Use
