M5 on Hosting

I recently blogged about the hosting market growing slowly. At least that is what IDC is says in a recent report. I decided to get the perspective of M5 Networks a successful company in the hosting business. I asked Dan Hoffman, the CEO for his take on the article. Here is his lucid response. I agree with Dan. This is normal “Crossing The Chasm market Acceptance,” just like we are seeing with VoIP and e-commerce.

There has indeed been an irrational exuberance over the idea of hosting an IP phone system because it makes strong economic sense and has many technical advantages. However, two things need to happen before it captures major market share. First, as the author points out, the culture of owning a phone system needs to change, just as it did with payroll systems. This will happen over a decade or more. Second, businesses need trustworthy service providers. This is the catch – running an IP phone system and network is hard, and service providers that are good at it won’t spring up overnight. Telco organizations have never been good at selling phone systems, and interconnects are slowly learning IP. Telcos and start-ups trying to offer this service have been making a lot of execution errors – trying to use the open internet to provide business-grade service, wholesale models with lots of hands to coordinate, opening too many cities at once, or simply underestimating the complexity of the offering and adding it to the same old Telco product list. However, in time, new purpose-built companies and organizations will emerge, and businesses will outsource phone systems as much as they outsource webservers. In New York, for example, last year a relatively unknown company – M5 – captured 3% of the new phone systems sold to businesses with 10-100 employees, and made money doing it. Slowly, slowly this will grow and other trustworthy providers will emerge, and I think we’ll together gain 5%, 10%, 20% of new systems sold – and on. This is a technology that should be put in the hands of experts, out of the closet and close to the networks, run with an SLA, and taken off the project lists of struggling CTOs.

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