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EXECUTIVE OVERVIEW

PREVIEW
N OV 20 1 5

2016 Trends in Service Providers


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

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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.
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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.

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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

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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.

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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

Figure 2: OpenStack Revenue Projections, 2014-2019 ($M) 4


RECOMMENDATIONS  5
WINNERS  5
LOSERS  5
Trend 4: Cloud Will Envelop Networking More Thoroughly, from the Datacenter to the Enterprise

RECOMMENDATIONS 5
WINNERS  5
LOSERS  5
Trend 5: Mobility Will Push Security and Performance Services Together 

RECOMMENDATIONS 6
WINNERS  6
LOSERS  6

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Trend 6: Applications Will Increasingly Define How Web Hosting Service Providers Go to Market

Figure 3: Firms Are Turning to Hosted or SaaS Models for App Deployment 8
RECOMMENDATIONS  8
WINNERS  8
LOSERS  8

THE LONG VIEW

FURTHER READING

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INDEX OF COMPANIES

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