Hyperintegration, a serious threat for the hosting industry
Updated: Aug 1, 2019
For a couple of years I am telling any hosting exec I know that I think it is a tremendously bad idea to resell Google's or Microsoft's productivity app suites G-Suite or Office365. I my world this is equal to hand over your customers to Google or Microsoft.
Productivity app suites are the apps that we use by far the most (3-4 hours a day), at least in the Western world. Your whole business life resides in these apps, all your contacts and appointments, with the exception of messaging (here you might use Slack or competing products) all your e-communication and you also create and modify documents of any kind in these apps. They are the center of the business universe.
I am convinced that whoever is the maker of the productivity app suite a customer uses, basically "owns" this customer, no matter which company (re-)sold it to her. The user has a strong attachment to these apps and it is really hard to impossible to convince her to change to a different solution. The customer relationship is actually most likely owned by Google or Microsoft even if there is a hosting company in between as a reseller. And both are also offering their solutions directly to end customers. They are direct competitors of hosting companies, and fearsome ones. Just imagine Microsoft would acquire Squarespace and would hyperintegrate it into Office365 and then push it with "some" marketing dollars. What do you think will happen with the likelihood of Office365 users buying a solution of GoDaddy or 1&1 Ionos?
The main competitor of all hosting companies is not other hosting companies. They are Google and Microsoft.
Some hosting companies understood and promote alternative personal productivity app suites to their customer base. Which is a good first step. But even these companies mostly don't realize how urgent it is for them to establish an alternative player in the app-suite space. The reason why I think there is a tremendous urgency comes from hyperintegration for better user experience.
Because we use our personal productivity app suites so much they are the primary target for apps and services to hyperintegrate into. Google and Microsoft offer great APIs to anyone who wants to hyperintegrate into their app suites. But hyperintegration requires a lot of work so vendors of apps and services typically just hyperintegrate into one of the two vendors, only a small portion into both.
Now imagine a world where hyperintegration is the standard, let's say 3-5 years from now. Will there be a chance for a third player to enter the market? Certainly there is always a chance, but it will be incredibly difficult. All the apps and services users will use besides the productivity suite will be hyperintegrated into their productivity suite. So even if they want to, they can not change their productivity suite to a new one that is not supported by all their other apps and services they use. They just can't. So entering the market as a third player 3-5 years from now is nearly impossible because even if you manage to build a great productivity app suite it will be nearly impossible to convince all the vendors of the other apps users need to be successful to hyperintegrate in your new app suite. It most probably will be as successful as Windows Mobile, out of nearly the same reason.
If the hosting industry does not wake up fast and works together to establish an alternative to G-Suite and Office365 then it will find itself in a dire place within a couple of years.
They will suffer they same as telcos suffered when Apple and Google took a big chunk of their profits and rendered them to mere infrastructure providers. But for hosters it will get even worse: they don't have any exclusive infrastructure to sell. As soon as Google and Microsoft have their own comprehensive website creation tools nicely integrated into their app suites they will basically not be needed any more. They will be reduced to the role of a mere resellers of solutions with EBITDA margins to match.