ISPCON: The Big Shift in Hosting

Here's the low-down on the session from the show guide:
The web hosting industry is undergoing a shift. For the past decade, web hosts and ISPs have focused on marketing technology features such as storage space and bandwidth. But increasingly, service providers are emphasizing their ability to support end-user-centric functions such as messaging and collaboration. Hosted applications and software as a service (SaaS), give web hosts unprecedented opportunities to enhance profitability and improve the rate of customer retention. With these opportunities come marketing, implementation and legal issues.

Isabel Wang identified trends and David Snead provided legal advice. Unfortunately, the session didn't touch marketing or implementation.

The rise of ecosystems (where developers work seamlessly together through open APIs - for example the 400+ third-party products on's AppExchange) present opportunities for web hosting companies to offer a range of third-party products without expending resources on technology integration. These third-party products can improve customer experience and can reduce churn.

Of course, setting up this kind of relationship presents some legal challenges. David provided some questions to consider:

- Who owns what?
- What is the ultimate goal?
- How will new inventions and derivative works be owned?
- Does money count more than work?
- Who owns customers?
- Do non-compete/non-solicitations work?


Isabel called out new business models in hosting like Amazon S3 storage and EC2 utility computing and ServePath's grid hosting sold per RAM/hour. She raised some interesting questions. According to Tier 1 Research, Internet traffic doubles each year. If that is the case, will bandwidth overselling be sustainable in the long run? Is the traditional bandwidth + disk space combination the most profitable way to monetize your data centre and hardware investments? Socialtext, for example, charges $95/month for a 10GB wiki.

David suggested service providers ponder these questions when considering a new business model:
- Do your current contracts work in the context of a new business model or offering?
- Do you need an SLA to guarantee 100% uptime?
- How will you police conduct?
- Does the new offering put you in conflict with your vendors, i.e bandwidth providers?


Personalization and data aggregation is another area of emerging opportunities where hosting companies are making progress, said Isabel. She cited the automated recommendations based on browsing activity (a la Amazon) and called our FreshBooks a service that lets you benchmark by comparing your financial performance to the industry average. Some of her ideas, to applying these concepts to the hosting business - provide tagging capabilities so users can classify their website; allow customers to create wishlist or rate equipment within their accounts.

David called out the privacy issues that can result from capturing personal data and marketing to people based on their web habits. Data aggration makes hosts information providers. While it is a great business opportunity, web hosting companies need to think about their business is in a different way. They need do lots of front-end analysis and homework, or they may end up in hot water. Consider privacy from the viewpoint of the customer. What is the expectation of privacy? What is the end-user's expectation of privacy?


The shift to managing data versus infrastructure means that customers will expect your SaaS to work, and their data to be safe. As hosting evolves, customers will hold their service provider responsible for generating incremental business, according research from Tier 1. The implications - the closer you are to customer data, the higher your potential profit. However, the expectations of customer are rising. Redundancy is taken for granted, hosting providers will face greater responsibility for record keeping, and hardware failure could mean bigger trouble than lost revenue.

Meeting customer expectation, says David, is the key issue in limiting legal liability. Data back-up and transparency and owning up to problems are crucial. Your legal documents need to be designed around your business. Work with lawyers who understand your business, the risks and your tolerance for risk. By adding new value-added services, web hosts and ISPs start to manipulate data and therefore assume responsibility for data.


The recap, the shift in web hosting services means:
- New contract issues
- Data retention is high risk
- Conduit status may be affected
- Pay attention to intellectual property
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