October 01, 2001
Rethinking Managed Services
I've grown skeptical in recent months that the analyst excitement about managed services would pan out. Back in July I put together a column for Colocation Network America that summarized my reservations.
On August 30, Relera did an about-face and abandoned the managed services market and shifted to a basic colocation model, saying there was more demand for colo than managed hosting - at least in the second-tier markets Relera was targeting.
Now, we have a similar turnaround from The Yankee Group, which in July issued a report declaring that colocation would become virtually extinct while managed services will be a $27 billion market by 2005.
This week Yankee Group analysts are singing a very different tune, as we read in Web Hosting Industry Review. "We do not see more companies adopting managed hosting next year, which was something that surprised us," Yankee analyst Courtney Quinn told The WHIR.
With many companies retooling their models to emphasize managed hosting, the data center and colocation industry can hardly stand any more surprises like this. If the analysts' crystal balls were looking fuzzy before, the events of Sept. 11 have further shattered expectations.
I'm not doubting the basic value of managed hosting. Down the line, managed services will evolve into a profitable business. But it won't happen nearly as fast as many analysts have predicted, and not nearly soon enough to rescue colo providers who are already in trouble.
Managed hosting isn't a life raft for drowning providers. It's a long-term play for providers with the cash to ride out the current downturn and patience to master lengthier process of selling to enterprise companies.
Do you agree? Or am I out to lunch on this one? Add your comments below.
Posted by RichM at October 1, 2001 05:04 PMI suppose there are some who have been saying for a while that vertical providers are not the ideal solution in the hosting business. Specifically that colo and hosting require two different skillsets that are not complementery in their provision: doing one well tends to come at the expense of the other, either in cost or quality
Posted by: B Shaw at October 2, 2001 02:08 PMP.S. Rich, really enjoy your articles and columns - great resource. Thanks
Posted by: B Shaw at October 2, 2001 02:32 PMHow does or with whom does a small colo and bandwidth provider go to or partner with so as to be able tomeet it's customers basic managed hosting needs?
Posted by: doug schuster at October 6, 2001 10:36 AMIt has been my opinion for over a year that the analysts failed to take into account the culture shift that will have to occur within data operations before they are willing to outsource considerable portions of IT. The slow uptake on managed hosting/services is just confirmation. I think you are correct.
Posted by: Sue Austin at October 8, 2001 10:52 AMWe see a continued need for co-location and dedicated only services as well as a growth in managed services.
You will always have those companies whose budgets are tight or whose in-house staff is sufficient so they utilize co-location and dedicated-only services to keep the investment picture low.
On the same token, we are seeing mroe and more companies that either don't have the internal staff, knowledge base, or more importantly time and need lots of hand holding.
Those customers want proactive managed services.
Posted by: Peter M. Perchansky at October 24, 2001 03:40 PM