Dan described the Managed Hosting and colocation sector as “on fire” The sector is humming – incredible growth, outstanding execution, blowing away expectations. I must say, looking back 5 years ago after the tech bubble collapse, I can’t believe how strong the sector bounced back from those very difficult times.

His presentation was focused on a future, and a longer view for the industry. The HTS conference is packed this year with the largest attendance of Datacenter owners, Managed hosting and colocation companies ever to attend this conference.

• Demand steady or increasing in all markets, driven largely by capex constraints and greater awareness and choices.
• Supply is growing more slowly in the past 18 months as the credit crunch has hurt the ability of providers to expand ( it is very hard to get mortgages, loans only on new datacenter projects). Expansion build-out of existing shells is occurring, but very little on spec.
• Demand Growth of 15% in 2008. (Steady and increasing in the out years) However after supply growth peaked at 7.5% in 2007 supply growth now has slowed to 5%
• Dan believes that supply growth will pick back up again in 2011

Conclusions – supply is tight, demand is high and growing…this very good news for the industry.

• Some other trends:
  • The green initiatives are more than just a trend as datacenter owners who don’t figure out how to maximize power efficiency will be painted as villains.
  • Internet traffic and services consumption are linked as Internet traffic growth has been doubling every year (2005-2007)
  • Prediction: 2011 -2012 - internet traffic will get an exaflood – it is coming with a new breed of applications (set to boxes HD Video, games, etc.) that will drive new traffic patterns. Growth driven by consumer broadband + applications (HD video) applications, which in turn will drive demand for Managed Hosting / Colocation Services…

Managed Hosting Services Highlights

• Incredibly fast growth 30%+
• $10 Billion worldwide revenue by end of 2008
• We’ll keep growth pace until at least 2011
• Good news, Dan believes that fears about slowdown in growth are wildly overblown.

Why is managed hosting growing so fast?

• Demographic shifts – new breed of IT employees that embrace outsourcing
• Growth in internet applications (SaaS) The acceptance and growth of browser based applications has been enormous!
• Ambiguity between web hosting and managed hosting has turned positive

Dan’s Key success factors managed hosting and services

• High margin services – and not too many – it is so tempting in our day to day business when a customer comes along and wants to come and give us money for a unique on-off service… at this point the answer has to be no – or do it through a partner.
• High level of support delivery is critical – don’t cut pay in support people or outsource support to save a nickel… what you are selling is support. Keep doing this well or you will head into a bad place… just as examples in retail like Home Depot and others who have struggled with customer service challenges – the whole business starts to slide into the toilet… High levels of support delivers a strong word of mouth buying cycle

Final thoughts, the industry is healthy and will continue to thrive. Customers are looking for the one stop shop, one company that is a trusted advisor to the customer. As customers place more eggs in the Managed Service bucket, the industry will need to tighten-up those SLA’s. Today some parts of the industry have been getting away with loose SLA’s… as customers get more sophisticated and have more on the line, they will become more demanding and require robust multi-component SLAs and back-it –up.

ScienceLogic: Can you share any of the strategies/advice that you give to companies embarking on their BSM journeys?

Doug McClure: Well, first they’ve got to have a BSM strategy. Nearly all the clients I talk to or hear about wanting to do BSM do not have a BSM strategy. I talk a lot about this on my blog and with clients and it is relevant whether you’re going to think about “BSM Lite” or “BSM Heavy” approaches.

Once we have a BSM strategy, we need to establish a BSM roadmap that guides us in how we’ll implement the BSM strategy in a more tactical manner, focusing on short term iterative quick wins and 30-60-90 day projects. For more of my thoughts on BSM strategy and roadmapping, see the following blog posts.

• Elements of Business Service Management Part 3: Getting Business Service Management on the Radar Screen

• Elements of Business Service Management Part 4: What’s your Business Service Management Strategy?

As I’ve alluded to previously, a client first must define and understand what “BSM Lite” may mean to them. Don’t take what the analysts or the vendors pitch for what you should do to achieve BSM or what value you should get from it.

For any type of BSM to be successful, each client must define what BSM means to them and state what they expect to get from BSM. They must make it personal, make it a part of their company culture and elevate it to be as an important initiative as compliance, risk management, SOA, ITIL, or other initiatives may be within the company.

Please don’t get scared off from this strategy thing. Please don’t blow this off as something that the secret enterprise architecture council should be doing. If you’re unable to get an audience in these areas within your company, start within your own sphere of influence.

Your strategy could be as simple as enabling the local operations center to more efficiently classify, triage and resolve problems based on a simple business service or application contextual understanding. Focus on how this changes the game within your environment. Come up with your own metrics and measures to assess the value this has to this organizational use. Trust me, you’ll need to justify your investment some time in the future.

Another trait of successful BSM implementations is that of the formal monitoring and management tools group has established some sort of database or knowledge repository that enables them to “manage the business of IT management and monitoring” if you will. In my opinion, the vendor community has let their clients down significantly in this area. The CMDB may be the correct answer, but most companies just don’t value monitoring enough to demand that this be included in their formal CMDB initiatives.

In my last job, we developed an application that I referred to as the “Service Management Database” or “SMDB”. Others may call it something else, but in essence, it was the database that captured what was monitored, how it was monitored, who owned it, what business services and applications it supported, the impact an outage or event from it had on the business services or applications, etc.

One key component of this “SMDB” was establishing the relationships of real and synthetic user and transaction monitoring steps to associated servers and applications. This is a significant gap area in many tools and vendor CMDBs.

Clients who have instituted something formal such as this generally have a very good handle on management and monitoring within their environment. Far too many clients do not have adequate monitoring (read visibility) in place to begin their BSM journey.

I’d strongly recommend a good hard look at how well the client’s monitoring and management practices are implemented and managed. Simply put, if they don’t have adequate visibility into how well those business services and applications are performing, you can’t expect to manage what you can’t “see” that may be impacting the business, clients, revenue, etc.

Just ask yourself this – can you explicitly state what monitoring is in place for a given business service or application? Can you quantify the impact of a simple event to a business service or application? Can you explain why something is red, yellow, purple or green and what causes it to change from one color to another? If you can’t, your BSM journey will be challenging.

Those with formal CMDB initiatives have their hands full with high risk, long time to value projects to just get a handle with traditional configuration management models. Taking these low level configuration items (CI’s) and establishing application and service dependencies comes after a lot of work getting through the organizational challenges of getting systems access to populate the CMDB.

I strongly recommend that the formal monitoring and management tools group create an authoritative database that enables them to establish end-to-end visibility into the service and application delivery chain and the impacts it has on the business, customer, etc. This ultimately becomes part of a more realistic federated CMDB within the business.

ScienceLogic: Can you provide an example of a successful implementation of BSM? Were there specific factors that especially contributed to its success?

Doug McClure: I’ve touched on the highlights of the most successful BSM implementations throughout my previous answers. Clients that have rallied around an organizational change or transformation focusing every team member’s efforts and energy towards ensuring that the business goals and objectives are being met through the delivery of highly available business services and applications.

Far too often the “change” never happens and it’s the “talking heads” that are preaching to the choir about what should be done. Every person on the front line, in the support teams, at the help desk, etc. must understand how they support or impact the business in business terms. Try putting this simple phrase after job titles “Hi, my name is Doug. I’m a Systems Administrator, Supporting the Business”.

That was a mouthful, but simply put, these clients have an impressively instrumented business and IT environment with the right amount of visibility into each area, joined together with an organization that thinks, operates and responds based on their understanding of the business goals and objectives and how these business services and applications enable business success.

The operational model for an organization fully adopting BSM identifies ways to establish a service management mentality across the entire business service and application delivery and support chain. The delivery, operations and support organizations must be incented to manage the services and applications being delivered with this end-to-end context.

A leading, outside the box “service management organization” may include the traditional IT silos but within a matrixed fashion focused on one or more key business services and applications. The “service management organization” is then incented to work together, as a team, for the end-to-end delivery and support of these services or applications.

It’s no longer one’s job to just be the systems administrator, database administrator or network engineer, their job is now to support specific business services and applications. They provide the subject matter expertise needed to support the services and applications together, as a team, eliminating the finger pointing or “not my problem” attitudes that exist in the majority of IT organizations today.

Overall, the KISS approach is what will enable BSM of any type (lite, heavy) to be the most successful. If it just feels natural, doesn’t take any additional effort, clicks or tasks to do then it’s going to work. BSM should be transparent and not just another buzz word. It’s not a form that gets filled out or a special process to follow in the run book. It’s doing the right thing for the business, no matter what the situation, crisis, buzz word or technology initiative of the day is.

ScienceLogic: How did you get involved in BSM?

Doug McClure: I think the foundations of my service management background and passion were initially established during my service in the US Navy. Today, I relate that experience to what I call BSM for the Military or Mission Services Management (MSM).

We had been taught over and over that extreme attention to the details of the mission at hand (aka “the business”) was the number one priority and that all of our technology, services, and applications existed for those Sailors and Marines on the other end (the “customer”). I can recall countless instances where mission critical communications services (telephony, orderwires, teletypes, command and control systems, etc.) were impacted in one way or another. It was extremely critical that we understood who was impacted and to what degree so that contingency plans could be activated. We weren’t just talking about lost revenue, poor sales or customer experience; we were talking about human lives and the security of the United States.

It is that military bearing, attention to detail and real world experience that drives me with many of my modern day BSM endeavors. That migration from “Mission Services Management” to BSM was honed working for over 10 years working in the Internet Service Provider (ISP) and datacenter, hosting and colocation business.

In those rapid growth businesses during the Internet boom, service differentiation was what “made you millions” or paved your way to bankruptcy. The companies I worked for had an extreme passion and focus on ensuring that their services, applications and Internet access products were of the highest quality, highly reliable and just plain better than the competition.

Again, the IT infrastructure, service quality and customer experience relationship was ingrained in all of our heads. It was all hands on deck when Webmail, Internet access, DNS, or the network experienced problems. We were measured in terms of how many customers experienced a busy signal or dropped connection or if you couldn’t log in fast enough to read your email. Companies like Keynote Systems and LionBridge/Veritest/Inverse tested the quality of our networks, services and applications and publicly ranked us against our competition. We thought in terms of customer experience and impact every minute of the day, 24×7.

It was in my last job managing a traditional enterprise management and monitoring development group for a nationwide ISP where I was able to work with emerging technology to help get a handle on the complexities of these rapidly growing IT environments filled with emerging technologies and products. Applying this early technology to complex service problems in our environment proved to me that the technology, coupled with the right emphasis on how the technology was implemented and an emphasis on the people and processes within the organization could bring BSM to life.

Where I felt left out in the cold was with my vendor relationship. While their technology gave me the potential, they didn’t teach me how to work through the organizational and technological problems to successfully implement the BSM strategy. My very first end-to-end BSM pilot was extremely successful and provided visibility into the IT environment and business service impact that have never been available before.

And here I am today, working at a software vendor for the first time. Welcome to the “dark side” as they say. The approach and methodology we followed for BSM has become the basis of the core BSM Methodology that I teach IBMers and our clients around the world today.

My personal mission and drive here at IBM Tivoli is to ensure that BSM is something that the typical monitoring tools administrator can actually implement and that our BSM story is something that any of our clients can be successful with. The sales and marketing slicks must be backed up by something like this whomever you are these days. Clients shouldn’t put up for “marketecture”, me too and gee whiz buzz words.

BSM takes a partnership and commitment to every client’s success, and I want to be involved in those BSM efforts in every industry or market worldwide. We need more thought leaders collaborating together in an open and public forum to change legacy attitudes about BSM and do what we can to enable client’s to be as successful as they can be.

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