Dataquest: U.S. Hosting Market Will Surge

The value of the U.S. hosting market will explode over the next four years, due largely to the ongoing shortage of skilled IT workers and the desire among companies to be first to market with new applications and services, research company Dataquest Inc. said in a new report.

Dataquest labels hosting companies as those which help manage data center facilities, bandwidth, storage and applications. That market generated US$2.1 billion in 1999, a figure that will increase to $9.3 billion by 2004, the market research company said in a statement Monday summarizing the report.

The wholesale market, in which one service provider sells services to another, and the retail market, where services are sold directly to end users, should both benefit from the popularity of hosting in the coming years, Dataquest said.

"There is a direct market where the enterprise will buy hosting services for a system that they have either designed or had a partner design," said Bruce Caldwell, senior analyst in outsourcing at Dataquest. "They may want to own the application but agree to let someone else manage the application."

Caldwell looks for large players in the retail market such as General Motors Corp. or Inc. to create their own applications for conducting business and managing data, and then outsource the management of these systems to a dedicated hosting vendor.

Dataquest also suggested that telecommunications companies, hosting vendors and other major outsourcers play on each others strengths in order to garner as much as possible out of the growing hosting pie. These companies could invest in each other's strong points in order to ensure that enough bandwidth and data storage is available for hungry clients, Dataquest said.

"The idea is that there is a division of labor taking place among service providers," Caldwell said.

Caldwell looks for companies to focus resources on keeping their signature technologies up to date, while depending on hosting companies to carry some of the outsourcing burden.

This study, while bullish, might fall below the numbers eventually turned out in the hosting market. Caldwell calls it a preliminary look at the market.

"We have reason to believe it's conservative,' he said.

IBM Corp. alone will generate US$800 million from hosting services in 2000 -- already a large chunk of current hosting revenues, according to Dataquest. Caldwell sees this as one possible reason to expect larger totals in the future.

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