Friday, March 21, 2008

Webhosting Day 2008 - The New SaaS Battle Lines

One thing that has come out of this conference is that Google is being treated with a lot of credibility as a threat to Web hosts. Now that we all agree (interesting in and of itself, I suppose) that Web hosts are clearly in the business of offering hosted applications, and Google has been extremely consistent in executing on its strategy of delivering hosted software.

And it is, of course, important to note that Google is not in the business of partnering with ISPs or hosting providers. Google is going it alone, and is succeeding at securing the market - hosted email, definitely, and to a fairly menacing extent other small business apps.

One of the remarkable things about that, and one of the things noted Serguei Beloussov, CEO of Parallels, in his Tuesday keynote presentation, is that from the Web host's perspective, that makes Google the new "evil empire."

The company doesn't want to partner with distributors. It wants to control everything from user activity to user data to payment. And it doesn't appear to have any intention of leaving any business out there for anyone else (meaning Web hosting providers).

Once considered the "evil empire," Microsoft is now the nice guy in the SaaS market. Microsoft has always been friendly to the partner model, from OEMs to VARs and now more attentively to hosting partners. Now, the company is almost by default carrying the banner for smaller service providers into the battle for the business of small business.

It's a battle between giants - big as they come - and if you're a smaller hosting provider, you're either in the ring with Microsoft, or you're on the sidelines, probably cheering for Microsoft.

That metaphor maybe got a little confused. Basically, you don't have to be a Microsoft partner to want "partner-hosted solutions" to beat "one company operates the whole Internet" as far as SaaS models go.

From Serguei's perspective, the answer to the challenge is something akin to "use Parallels products," generally. More specifically he says you should be paranoid about efficiency, and about providing an automated and self-managed solution. And that mans an automated and virtualized architecture.

And make sure you own your customers. Hosts are in the enviable position right now of having the customer relationships that every builder of business applications covets. When adding those applications to your own offering, hang on to those customer relationships. Only resell solutions in a white-label model, he says, where you continue to own the customer.

Ultimately, Microsoft and Google are going to offer everything that hosting providers used to offer - domains, a Web presence, email, and everything else. For more complex business solutions, there's still room for hosting providers to make those customer relationships evolve.

Who let YOU in? International Hosting Law.

As Liam noted in his blog, I’m at Webhostingday.  This is my first hosting event outside the U.S.  As the title above suggests  - the question I’m getting the most is “why are you here?” or with a bit more meat:  “what use are you to hosts and other internet infrastructure providers who are outside of the U.S.?”

Sidestepping the jurisdictional issues (I’m a member of the bars of the District of Columbia and State of New Mexico), this question goes to the fundamental issue facing all hosts, and the Internet in general:  who’s law applies?

Let me answer that in a typical lawyer fashion:  it depends.  Let’s say I’m representing a company in Ohio.  They have a disgruntled customer in Maine.  I’m going to argue that Ohio law applies, since that’s where my client is based.  Let’s say there’s the same set of facts, however the customer in Maine has money in a bank we’re trying to get.  I’m going to argue that Maine law applies.  U.S. law supports both arguments, particularly in the business to consumer context.

In the international context, the arguments are relatively similar, except it’s much more difficult to get courts of one nation to apply the laws of another.  This is VERY true of U.S. courts, who will almost never apply the laws of a foreign jurisdiction, or, for that matter, even cede that a foreign court may have come to a more reasonable decision.

However the Internet is global, and my clients, and the attendees at Webhostingday, have clients all over the world.  So, to make the example above more complicated, how does a datacenter in Cologne leasing space to my client in Ohio, deal with my client’s problem customer in Maine?

The answer that applies 75% of the time is by using a common contract.  In the hosting industry, along with many other Internet industries, a consensus has developed about what is, and what isn’t, acceptable in contracts.  Except in their extreme forms, most hosting contracts (at least those that I’ve written) can be distilled down to very basic principles.  These principles have wide application in almost every country that has accepted the principle of doing business by contract.  By creating contracts that hew to these principles, it is much more likely that they will be enforced by courts from the U.S. to Uruguay.

So what about the other 25%.  The other 25% tends to involve issues, such as privacy, reseller and redistribution rights, and price floors, on which many countries disagree.  As companies move up the value chain, and create more varied products and services, their ability to sell over the internet with a standard contract that applies to all customers regardless of country, decreases.  In that case, typically my clients will engage me to prepare a standard contract, and we’ll work with attorneys in targeted countries, or geographic areas, to create a specific contract.

So that, I think, is the general answer to “what can you do for non-U.S.” hosts.  As to other reasons why I’m here:  I’ve done several transactions in the past year where, thanks to the weak dollar, my clients were either acquiring a company in the U.S., or being acquired by a company in the E.U.;  I have clients in the E.U. who have encouraged me to come; and finally, to Liam’s point in a recent blog entry, I’ve always wanted to ride roller coasters as much as I desired without waiting in line.  Just don’t tell my daughter.

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