Microsoft's Hosting Summit highlights need for providers to move up the stack

Microsoft's Hosting Summit highlights need for providers to move up the stack

Analyst: Al Sadowski 31 Mar, 2015

Microsoft recently held its annual Hosting Summit in Bellevue, Washington. The event was sold out in advance, the keynotes were standing-room only, and the vendor showcase was crowded with event sponsors. The growth of the Microsoft Hosting Summit is not surprising, because service providers from around the globe are looking for ways to increase revenue beyond simply selling compute and storage infrastructure. A highlight of the event was 451 Research's annual readout of survey results from hosting service providers.

The 451 Take

Hosting servers and storage is no longer a differentiator for service providers, and is seen by many as a commodity business. So Microsoft gathered partners for its annual summit to pitch its strategy for helping hosters grow revenue with its partner program Cloud OS, and Azure. According to 451 Research survey data, customers are demanding more services, and also pushing for private cloud and hybrid options. Microsoft's software solutions are one way to meet the need, and based on the capacity crowd and product growth rates, it is succeeding.

Context

The theme of Microsoft's 2015 Hosting Summit was Seize the Moment! Last year, the theme was also a call to action – The Time is Now. Microsoft's strategy has not changed, and the company's message continues to be letting partners know that Microsoft has the solutions to help their customers move to hosted applications on private and hybrid cloud infrastructures.

The GM for Worldwide Hosting, Aziz Benmalek, stated that Microsoft's hosting business grew 35% YoY – even more impressive than the 23% YoY growth announced at the 2014 confab. Of the partners attending the summit, 54% were managed hosting providers and 17% ISVs. Microsoft also said it added 7,000 Services Provider License Agreement (SPLA) partners in the last 12 months, with SQL server representing the largest share. It also reiterated the key strategies for Microsoft to build on its partner business – Cloud OS, Cloud Solution Provider Program and Azure.

Microsoft introduced Cloud OS in 2013 to refer to a set of common tools for operating and orchestrating infrastructure, including Windows Server, Hyper-V, parts of System Center and Windows Azure Pack. It believes the consequence of a uniform set of technologies deployed across on-premises infrastructure, service-provider environments and the Microsoft Azure public cloud is the portability of workloads across all three environments, and the ability for customers to manage hybrid-cloud implementations that use resources across those environments from a single interface. Per the company, it now has more than two million hosted Windows servers deployed worldwide across all partners, and more than 100+ partners in its Cloud OS Network. Combined, they serve more than four million customers.

Microsoft claims to have deployed more than three million Office 365 seats ('triple digit growth') via its service-provider partners. Office 365 is now part of its Cloud Solution Provider program. Enterprise Mobility Suite became available on the Cloud Solution Provider program in March 2015, and additional products are expected in time.

Azure, Microsoft's IaaS, shares a space with only a few other vendors that have the same ability to develop global-scale, complex platforms and services that reach mass audiences – AWS and Google. Microsoft cannot possibly meet the demand for managed infrastructure and IaaS on its own right now; it leverages its robust provider market to serve the majority of that need at present. At the conference, the company said Azure hyper-scale services have realized a 325% growth in consumption from the 350+ service providers now with Azure usage. There are 26 partners in the Cloud OS network that have built Azure-differentiated offers to date.

451 Research survey highlights

Once again, 451 Research conducted a survey of more than 1,700 hosting providers across 10 countries, and we provided those findings during a keynote presentation at the summit. Findings suggest that as customers look to grow business, they want to do so at a faster pace by leveraging cloud-based technologies. The survey shows that 33% of hosting customers are at an initial cloud-implementation phase, and 22% in a broad implementation phase. The results also show that spend is growing as customers expand with applications and resources – average spend for an initial implementation is $18,000 per month, versus $25,000 for the broad implementers.

These same customers expect to pay a premium, in some cases up to 30%, for services each wants to source from service providers – a clear revenue opportunity for Microsoft's partners in the crowd. Per the survey, 70% of provider revenue has moved beyond basic infrastructure and into higher services (e.g., security services). For 80% of the customers, price is not a top concern when selecting a provider. It's about picking the right brand and product mix, its industry-specific capabilities, and trust.

In summary of the survey research, hosting services providers are continuing to move up the stack, from infrastructure services to managed services, and now on to applications-hosting services. The private cloud is the default strategy for enterprises. For service providers to be successful, each must listen to their customers, who expect hosters to offer mission-critical workloads with enterprise-grade trust and security.

Competition

HP and IBM are the other two vendors that rival Microsoft for depth of penetration into the enterprise, as well as public and private cloud services. Dell competes in the same vein, as does Fujitsu. Oracle also has private cloud and public cloud services for its database technology. It's worth noting that all of these major technology vendors are strategic partners with each other on many levels, making this a complex field.

Microsoft also competes directly with VMware for market share in the enterprise-hypervisor and infrastructure management market, and against VMware Hybrid Cloud Service in the hybrid-cloud market. In addition, its Azure platform competes with AWS, Google Compute engine and a long tail of public-cloud providers.

SWOT Analysis

  • Strengths

    Microsoft is a global brand with a strong footprint in the enterprise through Windows Server and its broader portfolio of applications. For service providers, Microsoft is mostly successful as a hosted application or server platform rather than one that runs its infrastructure.

  • Weaknesses

    Service providers may run into technology and skill-set barriers if their existing expertise and cloud services focus on open source technologies and the LAMP stack, rather than Microsoft technologies.

  • Opportunities

    Service providers that have a large deployment of Windows Server or Microsoft workloads may benefit greatly from Cloud OS. This can open up additional revenue streams for both Microsoft Azure and Microsoft partners that want to enable hybrid cloud for Microsoft workloads.

  • Threats

    There is a crowd of other integrated platforms in the market today that will challenge Microsoft for space in the datacenter. It could fail to differentiate or retain customers on Azure or be outcompeted by its own partner network.