An interesting development is happening in the hosting market that is a blend of
technology innovation and business model proliferation. It has been well established in the Internet services market that the delivery of free services, or “freeconomics” is a viable model so long as either advertisers pay to participate or that the 1% of the customers paying for premium services generate enough income to fund the free version for the remaining 99%. This shift has started hollowing out the classified advertising, encyclopedia and newspaper markets. E-mail, storage and collaboration hosting markets are also feeling the pinch.

There’s reason to believe that the traditional Internet hosting market is next.Amazon Web Services is attracting a lot of small businesses, particularly startups, with its low-cost compute and storage services that let these companies deliver robust online applications for as little as $50, paying not a fixed fee each month based on the actual resources they consume (CPU, storage and network capacity). If they’re successful, they pay more. Several hosting companies have followed suit with similar cloud computing offerings. None of these are particularly tailored to the enterprise buyer, as is detailed in the latest Forrester report on cloud computing but rather to attract a new and larger customer base with a unique value proposition. The approach is to host customers on a fabric of virtualized infrastructure where everything is shared and each client gets just the percent of resources they need, thus maximizing utilization — the more customers the higher the utilization and thus the lower the cost to support each customer.

What we haven’t seen yet is hosting for free. Microsoft might be best suited to lead this charge by offering free generic hosting and hosted delivery of its enterprise software as premium services – don’t buy SQL Server, rent it. Amazon Web Services is laying the foundation for this model today as it adds messaging, database and other hosted services to its Elastic Compute Cloud. RedHat is experimenting with this model by offering support contracts tailored to hosted deployments of its OS and software stack. Amazon just hasn’t made basic hosting free.

With enterprises looking at escalating environmental, software licensing and support costs and infrastructure complexity will it make sense in the future to host your own IT infrastructure? Will it make sense to buy to software the same way ever again? I suspect, we’re on the verge of finding out.

Forrester will be discussing this topic and more at its IT Forum in Las Vegas, May 20-23. Please join us.

By James Staten

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