Hosting Industry Perspectives: Issues, Trends, and Opportunities Melanie A. Posey Research Director, IDC May 9, 2007

Presentation Title (Manually Change in Master Slide)2 Agenda Service Provider Landscape, 2007 Forecast and Market Segmentation Update The Demand Side: What Do Businesses Want? The Supply Side: What Works? Q&A

Service Provider Landscape, 2007 IT Services/ Systems Integrators Pure-plays/MSPs Application Aggregators Network Operators SMB Hosters Colocation Providers Diversity of Vendors, Diversity of Value Propositions

Hosting Offer Landscape, 2007 Application Hosting Infrastructure- as-a-Service Online Business Enablement IT Outsourcing/ Consolidation SaaS- enablement Hosted Applications Service Providers’ Dilemma: Is What You’re Selling What Customers Need (or Think They Need)?

Market Highlights  Increasing enterprise willingness to outsource hosting/management of infrastructure for both public-facing Web sites and internal enterprise applications and platforms  Growth in small businesses Web site implementation and evolution of shared/mass market hosting into comprehensive online business solutions  Demand for content, particularly Web 2.0-type applications, is fueling interest in dynamic hosting and networking solutions to improve performance and reliability.  The return of colocation: increased power/cooling requirements of next-generation architectures are generating new enterprise interest in off-site solutions. Supply constraints in key metro markets result in increased service provider pricing power.  Utility/Virtualization computing: customer interest and adoption is expanding, but service provider delivery and pricing models are still evolving

U.S. Hosting Services Market Sizing Source: IDC, 2007 Total Market: $8.2 billionTotal Market: $16.4 billion

Outsourced Hosting Source: IDC Hosting Services Survey, 2007 Drivers include interest in flexible service options, data center power/cooling requirements, networking needs, and utility/virtualization Overall adoption of outsourced hosting has remained constant over past 2- 3 years, but companies that do outsource are shifting more and more responsibility to service providers Among small businesses, some of the in-house hosting segment is actually leveraging DIY tools and free/low-priced hosting from online service aggregators

Farming it Out: Outsourcing Decision Factors The largest businesses surveyed (>10K employees) cited security and regulatory compliance as the Top 2 decision factors. In prior years, the key issue was cost savings Performance improvements and skills augmentation are key decision factors for smaller companies. Smaller companies are also more influenced by the cost savings aspect of outsourced hosting Source: IDC Hosting Services Survey, 2007

Why Aren't They Outsourcing? Lack of cost savings emerged as a more important outsourcing inhibitor in 2007 than in previous years’ surveys The largest businesses surveyed are most concerned about retaining control of their infrastructure and believe that the security of the infrastructure and applications is best handled in-house Smaller companies are most confident of their ability to handle Web infrastructure in- house Source: IDC Hosting Services Survey, 2007

Service Provider Selection: Who Gets The Call? IT outsourcers/systems integrators are well represented among larger companies, especially the 10K+ employees segment However, telecom carriers are also key service providers across the market, including large enterprises Position of ITOs/SIs, telecom carriers, application management providers’ is partly a function of how large enterprises buy hosting:  Nearly 50% of large enterprises procure hosting as part of a larger network or IT outsourcing engagement Source: IDC Hosting Services Survey, 2007

What Else Are Hosting Customers Buying? Source: IDC Hosting Services Survey, 2007 Disaster recovery/business continuity is a key growth area, especially in the small business segment Hosted , already the primary hosting add-on for SMBs, is set to pick up steam among large enterprises Large enterprises indicate continued interest in bundled hosting, networking, and IT outsourcing services, underscoring the central role of hosting in enterprise business processes

Hosting Spending, 2007 <100 employees  Average: $1,900/month  Median: $630/month employees  Average: $10,000/month  Median: $1,150/month 1,000-9,999 employees  Average: $16,100/month  Median: $6,400/month >10,000 employees  Average: $35,000/month  Median: $22,100/month Source: IDC Hosting Services Survey, 2007 Modest year-over-year growth in adoption of outsourced hosting, but healthy year-over-year spending growth highlights the importance of upselling/cross-selling and providers’ ability to position hosting as the foundation for convergence, SaaS, and other key IT transformation initiatives.

New era of business critical systems  New business trends  New usages  New consumption models  New environment  New era of business critical systems  Real-time, network-centric IT applications  “Anywhere, anytime, always”- enabled business processes  Business-criticality as a key driver: reliability, availability, security  Enabled by technology innovations ▪Content delivery networks ▪Application optimization/acceleration ▪Virtualization ▪Broadband ▪IP Convergence ▪Mobility  Hosting as the foundation Customers Employees Partners Suppliers Hosting Storage CDN SOA Apps. Security

What Works? Levers of Differentiation Build a better value proposition: hosting as a means toward an end…  Dynamic, flexible IT infrastructure  Functional software apps (your own or someone else’s)  Community  Advertising Automated service delivery and process development  Repeatable solutions or “factory” infrastructure  Certified libraries of hardware, software and applications  Portals for customer self-management of on-demand functionality Integrate virtualization and service-oriented architectures into your own business model: creation of infrastructure-based “aggregation ecosystems” with services laid on top of utility platforms or plugged in from the side (partner- developed services) SaaS-enablement: But be clear on the hosting provider’s role – is the hoster provider the mall, the mall’s anchor tenant or both? Hosted applications: must be more than “software-as-a-service” -- the functionality must solve a key business problem The differentiation dilemma: no one wants to be “just” a hoster but a clear, sustainable value proposition means service providers must be careful and not overreach