Only 7 percent!

I was talking to Charles Jolley and Chris Bauman from SproutIt yesterday. They're exploring the possibility of marketing their email management app through the hosting channel. Their reasoning is, web hosting providers already have relationships with zillions of businesses. This puts them in an excellent position to give customers technology recommendations.

A convincing myth, this is. And one that lots of folks in the web hosting business believe in - even Peer 1's Ted Smith, a super brilliant guy who I've learn something enlightening from in every conversation.

Ted is surprised that a significant proportion of respondents in Rackspace's virtualiztion survey (PDF) weren't interested in testing virtualization through a hosting provider (36%), or hosting mission critical applications on a 3rd-party-managed virtualization platform (29%). Why such low confidence if these companies are ALREADY using an outsource provider for key IT infrastructure?

Ted concludes that hosting expertise might not necessarily translate into virtualization expertise, but I think the problem goes deeper. According to Rackspace's survey, 40% of its customers are very familiar with virtualization while another 34% have some hands-on experience. 57% already use virtualization for internal infrastructure. Rackspace, on the other hand, is still taking baby steps towards its first virtualization offering, making it a late adopter relative to most of its customers.

It makes sense, then, that 67% said they prefer testing or reading up on virtualization themselves, while just 7% expected to learn about it from Rackspace. Not quite the level of influence Charles and Chris envisioned, is it??

Comments

[Bob Warfield]

I didn't see enough about exactly how the survey was worded, and that is always a huge part of these market research exercises.

I did see concerns over performance impact of virtualization and security impact, both of which are reasonable concerns for someone with virtualization experience.

Now here is the $64 question that is so dependent on the way the survey was constructed:

What did they tell the customers was in it for them if they went with virtualization?

It's very hard to tell how the customers would answer this question from the pdf. Ideally, RackSpace should've offered some proposition and seen how many would bite.

Instead, we have questions like #10, where they ask if its okay if other customers are virtualized on the same server. Right away this would make me think the benefits of virtualization were all with the hoster and not very much for me if I were taking the survey.

Now if this were all couched as a utility computing presentation where virtualization lets them slice their usage finer and thereby save money, they might get an entirely different reaction to the survey.

[Isabel Wang]

Well... it wasn't couched as a utility computing presentation because Rackspace isn't planning to offer such a solution. Instead, you'll order an expensive, powerful standalone server and Rackspace will help partition it into multiple virtual environments.

http://utilitycomputing.itworld.com/4824/070815sharedservers/page_1.html

"[Nicholas Keller, Rackspace's platform products director] said that customers choosing a virtualized approach should not expect it to save them much money, as the same systems management overhead will be the same - and possibly higher... And he warned that anyone taking the virtual route must pay extra attention to sizing the physical server."

I don't feel like Rackspace is championing utility computing - or even virtualization - at all. Instead, they're presenting it as challenging technology where Rackspace's value proposition is its ability to help mitigate risks. This contrasts starkly with Jeff Bezos' and Ray Ozzie's promises that utility computing is an easy way to make "undifferentiated heavy lifting" go away.

[John N.]

It seems like a natural fit to sell Sproutit's email management solution through the hosting channel. Small buusinesses really need assistance in this area. You can already install a variety of ticketing systems with Fantastico, but I don't think that its a very elegant or easy to use solution for users who are not that savvy.

I think a company could take those open source ticketing systems, polish them up, and sell them as a hosted solution (all while contributing back to the open source project).

Too many businesses get by with sharing inboxes and creating a mess of their incoming customer emails. I've seen large organinzations doing this as well as inexperienced people don't realize how inefficient they are operating.

Why not turn your hosting company into a small businesses' entire IT department with hosted apps (CRM, accounting, etc.)?

As far as the virtualization, it really sounds to me that its an issue of semantics and internet-illiterate management. Alot of senior execs should face the reality that they might not be cut out for internet-based businesses.

[Isabel Wang]

I agree that people who buy web hosting often need other products and services. And hosting providers could *theoretically* recommend/support a wide variety of solutions. But...

1. I've met many vendors of synergistic products/services who've successfully built their customer base without going through the hosting channel

2. I've also met a lot of folks who are frustrated with lower than expected ROI of hosting partnerships

3. I don't often come across companies who feel their investment in the hosting channel has paid off.

Because in order for hosting providers to be technology influencers, they need to (a) be early adopters who are more eager than customers to investigate new trends, and (b) have in-depth familiarity with customers' preferences.

The one hosting provider that might meet both criteria is... Amazon.

[Isaac Garcia]

The Sproutit guys need to think about how they will be positioned in light of and against Gmail (sorry guys, but its true).

One thing to keep in mind is that Google has negotiated lots and lots of "partnerships" with hosting companies across the country to host the registered domains for Google Apps (thats right - Google doesn't host the domain, they've partnered with third parties for this). As part of the partnership, Google negotiates advertising and revenue shares back to the hosting provider.

This gives Google a strong influence over the hosting provider - since they are enticed by cash - and an "easy no brainer" foot hold into the small business that registered the domain.

Sproutit should be trying to negotiate something competitive to "Get In" with hosting customers before they are absorbed into Google's Collective Conscience.

Sproutit needs to be thinking about how to entice and incentivize hosting companies whom Google is already talking to.

Sproutit should try to be the de facto standard for "free webmail" provided by hosting companies.

How to do that??