What Customers Want A look at hosting and cloud spending trends Liam Eagle, Research Manager, 451 Research

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THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Agenda Recommendations The ongoing opportunity for service providers Cloud transformation and customer requirements Major hosting market trends

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Hosting and Cloud Market Trends

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Worldwide Hosting & Cloud Market Size, 2010 – 2019 Total Hosting + Cloud$26,162 $31,358 $38,507 $49,188 $59,806$71,912$85,402$100,333$116,619$134,411 CAGR % 9.9% 17.7% 21.7% 22.1% 24.8% 16.9% Source: 451 Research, Cloud Computing Market Monitor, 2016 Cloud share to grow from 7% to 28%

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Ubiquity and modularity of managed services Managed services are being applied a la carte, or bundled across a wider range of infrastructure and application products

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Best execution venues, hosting, cloud and apps Stratification of services and customers across a set of products that now includes both IaaS and SaaS

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM BEV and small business web site hosting Professional designers, developers Small business Wants to consume services (not building blocks) Little to no technical expertise Unprecedented access to SaaS point solutions Ease of use is more important than cost Products bundled around business outcomes Massive (invisible) intermediary market May not want to be hosting resellers Wants to build customer sites and hand off to host Support with developer workflow and account tools WordPress is critically important WordPress SaaS, application services

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Anchoring infrastructure, services, apps and security Web presence Web hosting CDN Cloud VM Storage Backup Anti-spam Collaboration Marketing Site security CMS SSL Search marketing Shopping cart Payments Recovery Domain Archiving Workspace Application Security Infrastructure Management Private cloud

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Recommendations Internalize best execution venue lessons, recognize market shift Invest in understanding your users. Focus on a manageable set of reachable user segments De-emphasize infrastructure building blocks in favor of business outcomes, even for fairly simplified services Position your business around a sets of services related to specific use cases Bundle services around those use cases – understand the customer segments you serve Deliver IT as a service

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Cloud Transformation and Customer Requirements

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Workloads shifting dramatically to cloud Percentage shift from 38% to 58% The shift of workloads to cloud environments over the next two years is dramatic, from 38% overall today to 56% expected in two years Off-premises workloads also shift from 29% today to 44% in two years Cloud providers will account for 68% of all Cloud workloads, up from 60% today Base=Cloud Adopters Source: 451 Research, Voice of the Enterprise: Cloud Computing, Q2 2015

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Cloud is underpinning business transformation Q. Rate the level of investment in the following technologies over the next 5 years in terms of meeting your business goals where 0=no investment and 10=significant investment. n=1734

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Multi-cloud and hybrid supports adoption Q. Which of the following best describes how your organization will use different on-premises & off- premises cloud environments over the next two years? n = 939 Q. Has your organization configured any of the following clouds for interoperability?

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Cloud shifting to emphasize customer outcomes New market New entrants win Engineering led Unpredictable Incomplete, good enough Simple Compete on cost Existing market Incumbents winning Business-led Predictable Secure Complex Compete on value Customers are along for rideCustomers are in the drivers’ seat Version 1.0 Disruptive innovation Version 2.0 Sustained innovation

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Recommendations Supporting hybrid cloud models (on your own infrastructure or supporting third-party cloud) can be a differentiator Being an enabler is a better bet than being an operator (with a few obvious exceptions) Focus on meeting organizational requirements ahead of technical specs Compete on delivering value rather than competing on price

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM The Ongoing Service Provider Opportunity

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Cloud Services Layer (MSPs, Integrators, Consultants, Managed hosts) Hyperscale public cloud providers Enterprise IT departments The concentration of expertise in a cloud services layer benefits all parties. Enterprise IT departments don’t have to hire or develop the internal competencies to execute projects in public cloud. Hyperscale IaaS vendors don’t have to build a managed services practice at scale. Service providers are part of a cloud services layer Early-to-late majority enterprise cloud adoption relies more heavily on design, deployment and operational expertise

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Cloud services layer, expanded Assessment, solution design Workload migration Brokering of third-party cloud Cloud services providers may operate based on their own infrastructure, third party IaaS and SaaS, or a combination of the two Application management Security management 24x7 premium support Backup and recovery and collaboration LOB applications Up-front professional services, solution design and overall cloud transformation functions Ongoing infrastructure, application and security management services. Performance and cost optimization Finished application services, or applied infrastructure products (based on storage, for instance)

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Managed services share of cloud spend is growing Managed services share of overall hosting/cloud core infrastructure revenue is growing Source: 451 Research Core Infrastructure Market Monitor

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Cloud spending goes way beyond infrastructure Q. Approximately what percent of your HOSTING & CLOUD SERVICES budget in 2016 is allocated to the following services? n=1600 Source: 451 Research study commissioned by Microsoft, 2016 Over 70% of cloud spending is now beyond Infrastructure services Hosting is truly full-service Security is a core differentiator; clients expect to pay for it

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Services drive cloud spending Infrastructure Services Application Services Security Services Emphasis on security exists across all categories of cloud services (including infrastructure) Source: 451 Research study commissioned by Microsoft, 2016

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Recommendations Service providers have an opportunity to fill the skills gap in adoption of cloud infrastructure and applications Hosting providers are uniquely suited to support both public cloud vendors and enterprise IT Services that bridge solution design, ongoing management and finished applications Add value to core infrastructure: application security, compliance, service-level guarantees, performance/cost optimization

THE GLOBAL EVENT FOR THE CLOUD AND SERVICE PROVIDER ECOSYSTEM Thank You! Liam