META Group Evaluates Managed Hosting

Web services, utility computing and an increasing emphasis on strategic outsourcing will drive the still-evolving $2.7 billion market market for managed hosting, according to META Group Inc. , a Stamford, Conn.-based research firm. The findings come from a METAspectrum evaluation for the managed Web hosting outsourcing market announced today.

This market, META Group reports, includes companies that provide the facilities, infrastructure and services used to house and manage Web hosting and related activities in North America. The research notes that the market consists of multiple tiers (for example, co-location, shared hosting, dedicated hosting and fully managed), but this report focuses exclusively on the managed segment.

The report highlights a distinct division between the mature low end and immature high end of the market. On average, managed hosting is growing at 47 percent, META Group reports. However, the rate of growth for high-end services is nearly double that of the low end.

“The market for managed hosting services is slowing as many customers consolidate contracts and migrate services in-house,” Corey Ferengul, vice president and principal analyst with META Group’s Operations Strategies, said. “Emerging industry trends that will accelerate hosting market growth include Web services, utility computing, and the general emphasis on outsourcing as a strategy to reduce costs and extend capabilities. The outsourcing relationship should be viewed as a trusted strategic relationship, emphasizing business value over pricing.”

While the market has experienced significant changes during the past year, META Group predicts more stability in 2003. Large providers dominate the managed Web hosting market, but there is room for improvement in service offerings, META Group notes. Providers with strong financials, a proven track record and a broad range of services are best-positioned for success, META Group reports.

The dominance of marquee players is reflected by the 11 vendors included in the METAspectrum evaluation: AT&T, BellSouth, Cable & Wireless, Conxion, Digex, EDS, Genuity, IBM, Qwest, Sprint and Verio. Key findings of the study include the following:

  • The market high-end managed services will not reach maturity before 2005.
  • The lower end of the market is now commoditized.
  • The managed Web hosting market will be dominated by large players.
  • Successful vendors will provide hosting services as part of a broader services portfolio.
  • The key differentiator in the enterprise market is professional services.
  • Vendors must demonstrate a commitment to Web hosting.

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