With cloud spending forecasted to exceed $480 billion in 2022, it’s hard to fathom an industry that won’t be impacted. “The economic, organizational, and societal impact of the pandemic will continue to serve as a catalyst for digital innovation and adoption of cloud services,” according to Gartner Senior Research Director Henrique Cecci.
As for the web hosting space, it’s hard to find a single company that isn’t feeling the heat. While the shared hosting market grew steadily from 2015 to 2020, the pandemic inspired a switch to cloud hosting for online solutions.
Cloud services providers offer flexibility and on-demand resources that traditional hosting providers simply aren’t set up to offer. Now, all players are feeling the pressure to embrace the cloud or risk getting left behind.
The Pricing Peer Pressure
The most obvious impact of the cloud spending boom is the pressure it’s putting on prices. Hosting providers are being forced to lower their prices to compete with the likes of Amazon, Microsoft, and Google. This is good news for consumers, but bad news for hosting providers’ bottom lines.
The rise of the free trial offer is a possible result of this pressure. It’s a creative way of getting a customer’s foot in the door without having to drop overall price points below the company’s means. We see this occurring in on-the-rise cloud players, such as Cloudways, as well as website builder veterans such as Wix.com.
As prices continue to fall, margins will shrink, and traditional hosting providers will be forced to look for other ways to make money. Barring the free trial route, this could mean introducing new features and marketing to upsell customers on higher-priced plans, moving up-market to chase larger clients — or cutting costs and skimping on features and support.
New Features Arms Race
While some may crumble under the pressure, seasoned engineers are excited by the challenge. András Gerencsér, Director of Development at Kinsta, recently shared thoughts on the opportunity the shift away from dedicated machines presents.
“Virtual machines and containers have brought the web hosting and development environments much closer to one another, so developers spend less time dealing with the differences and focus on what they do best instead: creating software,” he said.
CEO and Co-Founder of Platform.sh, Fred Plais looks back on his company’s experience as a cloud hosting provider and sees an upward trend in complexity.
“With the arrival of containers and microservices, there’s a need to be even faster and to manage even more applications,” he said.
“The platform we’ve built allows teams in charge of eCommerce sites, media sites, and high-traffic applications to focus their efforts on developing and improving their applications without having to worry about infrastructure issues.”
In response to the pricing pressure, many hosting providers are introducing new features such as automatic backups, staging environments, and as-a-Service add-ons. Others are beefing up their existing features to distinguish themselves from the competition.
“For many traditional hosting providers, there will be a scramble to find a way to scale to meet customer requirements,” said Blair Lyon, VP of Cloud Experience at Linode. “One of the things that makes the marriage of Akamai and Linode so exciting is that it really brings into focus how important it is to be able to service the entire continuum of cloud – from an individual developer to multinational enterprise – and do so with the scale and security this next wave of cloud computing requires.”
The Consolidation Conundrum
The hosting industry has always been a consolidating one, with the big players getting bigger and the small players getting gobbled up. The obvious example that jumps to mind: Endurance International Group (EIG) now owns more than 60 hosting companies, including Bluehost, HostGator, A Small Orange, and iPage.
But the pace of consolidation is likely to accelerate in the coming years. As margins shrink and competition intensifies, smaller hosting providers may find it increasingly difficult to survive. Many will be forced to sell out to larger competitors or shut down altogether.
While this conundrum may appear to leave fewer choices for consumers, it also presents opportunities for companies to capitalize on the strengths of their parent/sister organizations.
“Linode was acquired by Akamai earlier this year, and, since then, we’ve been working on a series of new services and offerings that leverage each other’s strengths,” said Blair. “One of those is our new, managed database as a service. But there’s a lot more on the horizon. Stay tuned!”
The Battle for Talent
With so many companies moving to the cloud, the demand for cloud-related skills is skyrocketing; but the supply of skilled workers is not keeping pace. This has led to a bidding war for top talent, driving up salaries and making it hard for small and medium-sized service providers to compete. Open-source technologies may help “neutralize” this threat, but the challenge remains.
“Competition for talent is beyond fierce,” said Blair. “Even though we have an incredible advantage — lifestyle balance, open culture, and the ability to make a big impact as part of a tight-knit team — finding and competing for top talent consumes a tremendous amount of time and energy on the part of our engineering teams. Of course, once we onboard someone, they do tend to stay, so that’s an advantage we have.”
Attracting top talent is the battle but retaining top-tier talent is the war. In the wake of the pandemic, we saw some companies thriving more than others.
“We’ve created a company that looks like the cloud: fully distributed and very global,” said Fred. “Although we were originally a French company, our 350+ employees are now spread across 220 cities and 36 countries in Europe, the United States, and Asia.”
As COVID-19 hit and the world scrambled to adapt to a remote-first business landscape, the Platform.sh team had already been working — and thriving — from home for years. Fred credits this experience for having helped the company navigate the otherwise gruesome pandemic.
“While it’s true that there’s a battle for top-tier cloud architects and engineering talent in our space, the unique work environment and the competitive salaries we offer have continued to draw in superior technical talent,” he said.
The talent shortage is also having an impact on the quality of support that providers can offer. With support staff stretched thin, many providers are cutting corners and offering subpar support. This is bad news for customers, but good news for the few providers that offer quality support.
“(Customer support is) often the first department in which companies cut corners,” said Kinsta VP of Marketing Andrea Zoellner in a recent interview. “But Kinsta has made the choice to invest in building up a high-quality support team.”
The Rise of the Cloud Challenges All Service Providers to Up Their Game
From the pressure it’s putting on prices to the war it’s creating for talent, the impact of the cloud spending boom is far-reaching. But it’s not all bad news.
The boom creates opportunities for hosting providers to differentiate themselves with unique features and quality support. And, while the surge puts pressure on traditional hosting companies, it also turns up the heat for cloud service providers (CSPs), which means customers can expect great things on the road map.
“Developers want their CSPs to deliver a seamless experience for deploying and managing applications that need datacenter and edge resources,” said Blair. “CSPs will have to significantly up their games to play in this new market where the capital and technical barriers are formidable.”