Hosting Apocalypse

Trevor Orsztynowicz

If you run a managed hosting company then your time is officially ‘up’. You won’t survive the coming hosting Apocalypse. Here’s why.

There are a few companies you may have heard of building large compute grids for consumption by the general public. They’re calling them their Cloud Computing products. IBM is building BlueCloud, Microsoft is building the Mesh, Amazon already has EC2, and Google has AppEngine. AppEngine is in a slightly different category than the others and the BlueCloud details are sparse, but they’re still worth mentioning. Of more immediate interest are Amazon and Microsoft’s solutions.

Microsoft is currently building their famous 300,000 server Data Center in Chicago. That’s roughly 3 times the number of servers that Google has. Microsoft has also announced several other Data center projects - each worth about $500 Million. It’s fair to say that that’s a lot of computing power, and it’s not all for MSN - Microsoft is planning on providing their platform in the cloud.

The real question is what Amazon will do when the Windows Cloud comes online. Microsoft has enough money in the bank to provide their 300,000 servers to customers for years without earning a single cent. That implies they can offer services at super low rates; Low enough to at least compete with Amazon’s EC2, which will support the Windows Server OS in fall 2008.

What happens with two huge cloud hosting companies get into a price war?

In the interest of self preservation they won’t make their services commodities

  • at least right away. But it won’t even matter. When you’re as big as Amazon, Microsoft, Google or IBM, you can afford to buy servers in such massive quantities that you could make money selling compute time for 10$ a month. The hosting space will change forever, because Amazon will eventually drop their prices by an order of magnitude and that has dire implications for the rest of the Mom’n’Pop hosting companies.

If thousands of companies can’t compete with Microsoft or Amazon on price, and they can’t compete in terms of convenience, then why would anyone use them? If you have to buy individual servers, or even servers by the rack, then you’re not going to get the price you need to be able to compete. You also don’t have access to the handful of specialized individuals and hardware required to make things work on such a grand scale.

The only answer is for all the smaller players to band together - to create a Federated Hosting environment, where together they can provide services that begin approaching levels of service and power that the Big 4 will offer.

Either way, we’re in an interesting period in the industry. Computing and the infrastructure of technology has become such a requirement for the economy that it will eventually become a general utility. The real question is who will be around.