Hosting companies are smiling due to a couple of trends that are pushing business their way.

Perhaps the most important is that the business sides of the telecom and IT sectors are following the ongoing technology evolution that puts Internet Protocol (IP) center stage for two related but historically distinct endeavors: connecting companies to the outside world and creating and running the applications that allow them to do cool things once those connections are made.

The primacy of IP leads to an inevitable business convergence in which one provider can more easily offer both the basic connectivity and application suites, such as those that mix video and conferencing. Hosting companies are in perfect position to provide these converged services and, in essence, take a whole lot of aggravation off the businesses’ hands.

This all takes place in a magic place called the cloud. David Bukovsky, the vice president of products for VoIP provider BroadSoft, says that hosting is being driven by the general desire for greater efficiencies and the ease with which IP telephony can be married to other applications. “There is a general trend to move things into the cloud for efficiency purposes,” he says. Within the cloud, there tends to be [an easier] integration of all the tools.”

It’s All About the Benjamins

The technical trends would mean little if it still made sense for companies to do everything in-house. Increasingly, it doesn’t, because money is tight and staffs are smaller and stressed. Hosting is growing – and growing, according to observers, at both the enterprise and small and medium-sized business (SMB) levels – due to the recession.

Actually, there are three interrelated financial drivers: The trimming of personnel due to budget cuts makes it more difficult for organizations to internally plan, launch and support projects. So the logical step is to look outside. The case for making this jump is strengthened when the second factor – the simple reality that a hosted solution is less expensive than going it alone – is recognized. Finally, it shifts investments from capital to operational expenditures (capex to opex), which is considered an easier sell in a poor economic environment.

Creating precise industry-wide definitions – delineating the similar and at times overlapping worlds of hosting and managed services and reconciling them to new buzzwords such as software-as-a-service and cloud computing – still is a challenge, since fuzzy understanding leads to corporate inertia.

In general, however, the hosting industry and its current and prospective customers are settling on definitions in which hosting arrangements are those in which the equipment – even the phones on the desks, in some cases – are owned by the service provider. In managed service implementation, the equipment is owned by the customer, whether the widget jungle is physically at the company location or the service provider’s location. In both cases, the equipment is operated by the outside party. In general, equipment in managed environments is dedicated to individual clients, while hosted gear is shared among customers.

That’s simple enough on paper. But, inevitably, shades of gray emerge in the real world. Ironically, at least in some cases, the confusion has more impact on the larger players because SMBs are too focused on their core businesses to pay attention. They simply buy services they think will benefit them without worrying where on the telecommunications and IT continuum they sit.

“I think clearly there is confusion between hosted, managed, software-as-a-service and cloud computing,” says Tim Whittington, the senior vice president and general manager of enterprise communications provider Aastra USA. “My sense is that a lot of smaller companies don’t even know some of the offers available. They’re so specialized in what they do [that they don’t pay attention]. I think that in terms of the confusion, it is more upstream from the smaller guys.” The safe assumption is that folks will wade their way through any confusion they feel if there is money to be saved.

A secondary benefit is that hosting can help tamp down a structural challenge that has grown in recent years. It’s accepted that the mix of telecommunications and IT technologies in initiatives such as unified communications and mobile field force management creates great advantages for organizations. However, when these projects are done in-house, territorial squabbles between the telecommunications and information technology departments often crop up. Put more simply, the integration of the technology itself is ahead of the integration of the folks who support it. By using an outside host, the company is able to bypass these problems.

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