T1R recently attended the Microsoft Hosting Summit, an annual event held in the rather quaint yet growing suburb of Bellevue, Washington. The event is host to 350 attendees that represent Microsoft's top hosting partners – ranked in terms of revenue generation. The majority of hosting companies represented are from North America, although there is significant representation from Europe and Asia. Hosting companies from 38 countries were represented. The event also included a number of partner vendors and limited analyst and press coverage, with T1R the recipient of the lone invitation extended to an analyst firm.

The goal of this event is for Microsoft to get in front of partners and present its vision for the hosting sector. This involves discussions and presentations focused on Microsoft's product roadmap and market strategy, along with discussions of new technologies. The event is also a forum, with Microsoft soliciting feedback and engaging partners in discussions. This happens quietly but is a crucial aspect of the event, and the outcome of these conversations is often the inspiration for various different product developments.

The general tone

In terms of the event's tone and atmosphere, there was a lot of continuity from last year. This was significant because last year marked a significant departure from 2007. The 2007 event was all about the changing nature of Microsoft's competitive posture. There was tension about this issue, but perhaps most important it was the uncertainty. Between 2007 and 2008, Microsoft has gone to great lengths to clarify its competitive positioning and strategy. While nobody looks forward to the entry of a well-heeled competitor, the hosting channel has come to term with it and are moving forward. The tone of this year's event reflected the progress that has been made on this front. Everyone has accepted the changes and moved on. There seems to be a realization among the hosting channel partners that there remain significant opportunities in new technologies and growth segments. This is not a sunset industry. Back in 2007, T1R's presentation at the summit provocatively asked, 'How can you avoid getting steamrolled?' Fast forward to 2009, and the discussion is centered on real ways of addressing that issue, along with the realization that the steamroller's momentum is anything but inevitable. It is a welcome change.

Strategic directions

Microsoft is pushing its partners in a clear direction and that is upward into higher-margin managed services. We clearly can't argue with the logic. Moving up the value chain is the path to higher ARPU, enhanced stickiness and a closer trusted advisory relationship between a provider and customers. It is the foundation of a core IT service relationship. Microsoft hopes this will open the door to other offerings – most notably hosted applications.

Applications are a key to the future of the hosting game, but T1R was intrigued by the attention paid to the importance of Web-based management interfaces and on-demand provisioning. This was mentioned in the keynote, but was also a big part of a technology demo focused on Hyper-V and System Center. Microsoft demonstrated how hosters can leverage these technologies to not just make their hosting infrastructure more efficient, but how they can productize it. An excellent example was MaximumASP, a hoster in Kentucky, which used this technology to build a virtual server product featuring an interface that allows customers to procure and provision on demand. These capabilities were also on display in an example of a fictional hosting company. The key point is that Microsoft is pushing technologies that help hosters move in the direction they need in order to be successful in today's market. This makes Microsoft a natural partner for hosters looking for ready made technologies to enable on-demand and cloud-type procurement and provisioning.

There was also plenty of discussion surrounding the emerging trend of cloud computing. Most hosters still disagree over exactly what cloud computing is (don't we all), but there is definitely a lot more interest in getting into this game compared with last year. Microsoft did a good job of shaping the conversation at the event (along with Tier1's help), letting hosters know that they tools are there to make this happen and other options – such as Azure – are also coming with the same objectives in mind. As T1R's presentation emphasized, we are still very early in the game and there are far from any real winners yet. The opportunity is there and Microsoft needs to continue pounding on that message. Getting involved with cloud will enable Microsoft to capture an emerging segment within the marketplace that sits right in the sweet spot of many of its partners.

Overall, it was a productive event in terms of keeping the dialogue going in the right direction. There was not any news on the product front, though partners continue to be hungry for it. This is any area that Microsoft will have to work on, though to its credit it has done a better job of this and is working with certain internal constraints. Hosting partners want and need a clearer roadmap. They need to know when things are coming and in what form they will come in. A certain level of clarity will go a long way. T1R also thought that Microsoft could have provided some more information on how hosters can customize environments and applications. This has some potential for product differentiation and although not all hosters spend a lot of time on software development, maybe providing more bridges between Microsoft-based ISVs and Microsoft-based hosters would be a great idea.

T1R was encouraged by the amount of feistiness from both Microsoft and its hosting partners. We get the sense that the sector is more cognizant than ever of the transformative forces shaping the sector and what has to be done to combat it. There is a deeper sense of urgency and a willingness to pursue new technologies, strategies and approaches. If change is the underlying pulse, then we have to be optimistic about the sector's chances at forging ahead. As many hosters have come to realize, there is more competition, and there is a lot to be concerned about. However, the game is far from over, and in Microsoft, they have access to many different enabling technologies (and services) that can help lead them to where they need to go.