Five disruptive trends facing the European hosting market

Disruptive Trend #1 – Increase in demand for local suppliers

The mix of international, pan-European and local providers in Europe is not a new phenomenon, but what appears to be is that many of the local service providers are seeing an uptake in demand. Partly this is about an increasing interest in local language support as well as for local data storage. However, wider Eurozone economic factors have resulted in an increasing sense of national identity and feeling of “safety” if local providers are used. This is particularly true for the SMB market.
For international and pan-European hosting providers, the challenge is gaining share versus local companies. Heavy discounting and advertising may work over time, but is expensive. An easier way is via acquisition. Leading German SMB hosting provider 1&1 recently bought Spanish firm Arsys Internet, gaining a respected regional SMB provider and opportunity for brand up-sell.

Disruptive Factor #2 – Eastern providers looking
to the West
A broad range of providers in Poland, Ukraine and Russia – such as Beyond.pl, Home.pl, Opero, and Jelastic - are starting to provide a range of hosting services to customers in the West. Some of these services are quite targeted – e.g. at the immigrant Polish community in the UK - while others are more opportunistic.
These Eastern European providers offer common advantages through lower cost-bases, competitive pricing initiatives and physical proximity to Central Europe. There is significant business from Russian companies looking to extend their reach into Western Europe via a convenient halfway house. There are also plenty of hard-pressed, German SMB companies who would be interested in introductory, promotional offers.

Disruptive Factor #3 – Changing pricing and contract models
The increase in choice and flexibility offered by the prospect of PAYG pricing can be a liberation from some aspects of contract lock-in. Such models are already popular at enterprise level for testing and development and new applications. However, it’s not overwhelmingly so: there are benefits in flexible usage models for existing static information repositories, non-production systems, collaborative platforms and directory functions.
There is also strong demand at SMB and Mid Market level, but with an element of management: “wrappers” of services for those without a large technical team or in-house skills. There is also the prospect of ‘freemium’ and “try-before-you-buy” models. Normally associated with the likes of Dropbox and in-app purchases via consumer stores, companies such as Amazon Web Services are increasingly offering free usage tiers as a way of introducing low-risk, zero-cost trials.

Disruptive Factor #4 – The role of legacy infrastructure
The advantage of disenfranchising physical infrastructure and moving to cloud-based offerings is clear. However, while helping move clients to the next stage of infrastructure virtualization is one option, co-existence and integration is just as important for service providers. Legacy infrastructure is not an either/or scenario, rather a case of broadening service provision and tailoring it to meet individual customer’s needs.
In fact, taking account of legacy infrastructure opens the door to new opportunities in the professional services space – whether this is via architecting, road mapping, readiness assessments etc. There is also the potential provided by cloud brokering and marketplaces: although still in their infancy, companies such as Zimory, Fedr8 and ScaleUp can simplify cloud service management, making legacy infrastructure co-existence an easier prospect.

Disruptive Trend #5 – Privacy & Data Regulations
Recent revelations about the National Security Agency’s Prism surveillance program have re-ignited the data privacy debate, and riled the European Commission. While contravening EU Data Protection legislation, it has created opportunity for European web hosters reportedly seeing an increase in new registrations for e-mail accounts from those switching from US-based suppliers. It has also sparked interest in data sovereignty, particularly in the SMB and Mid Market space, where customers are asking to host their own data in their own country. Further, those outside of the EU are benefiting: some Swiss service providers such as Artmotion and Exoscale market themselves on their being outside both the EU and US jurisdiction.
If all that results is a greater degree of awareness of current data legislation then this is a positive outcome. For larger enterprises, it is inevitable that additional legal protection and insurance will be required for hosting companies and technology vendors.
Although the above disruptive trends may seem a little pessimistic, the result is new opportunity. However, the route is via adaptation and investment-based development. Hosters in Europe will need to innovate beyond domain services and basic hosting to some form of managed services – either in-house or syndicated out to others.
If much of the opportunity associated with these current disruptive trends is around cloud services, this is not a threat, but a good thing. Hosting companies are the natural implementers of cloud services: they have the experience in merging multiple platforms and services into a single interface, and then selling this via an SLA with the corresponding support and customer service capability.