In the last few years, many service providers have found it increasingly difficult to make money from their hosting customers. In fact, in many cases, they lose money offering hosting services, but feel they must offer it to increase stickiness and reduce churn. They are correct in the latter assumption because if you open the door for another service provider to deal with your customers, those providers will inevitably attempt to lure those customers away from you and provide them with the services you currently sell them.

The fact that hosting has become a money pit is two-fold.

Service providers have not found the correct software to automate and manage their hosting operations. They understand the logic of automated provisioning, and control panels (that significantly reduce support costs), and then they pick a solution that is not completely customizable and dictates to them which services they can offer their customers, which billing systems can be supported, and not only must they migrate customers, but they must rely on their vendor for help in maintaining their operations, in ways that are totally different from how they have been managing for years. Is that throwing out the baby with the bathwater?

Service providers do not differentiate their offerings from the competition, so that customers are choosing by price alone. If I get the same services, then I should pick the company that offers it at the cheapest prices. Therefore, margins are significantly reduced, making it exceptionally hard to make a profit.

Deciding to outsource may have a couple of advantages for your company. It stops the bleeding, and you no longer have to manage both the hardware and the software. However, your packages become identical to any hosting company using the same outsourcer, so we're back to using price to attract customers.

Worse than the inevitable price wars, is the fact that you are no longer in charge of that division of your company but are dependent on another company to make decisions that affect YOUR customers. Since they are dealing with many providers those decisions are not necessarily in the best interest of both your company and your customers.

What is the solution then?

We suggest a hybrid model by which you outsource many of the services you offer but keep your basic hosting in-house. In this manner, you pick which services best suit your market, but you pay monthly subscription fees based on the number of users. You do not have to buy a software, buy hardware, nor do you have to install and maintain the software. Should you get enough subscribers for a certain software, you can always make the decision when you think it is cost-effective to buy it, and install it in-house (seamlessly).

"In order to take full advantage of advanced IP services, carriers will require integration of best-of-breed products with the OSS environment to enable customers to more effectively operate and deploy services in their networks," said Paul Hughes, director of billing & payment applications at Yankee Group.

The overall message is that telcos need to focus on "innovation" and customer relations.

With OHC managing your hosting operation, you can seamlessly integrate Software as a Service, opening endless new revenue streams. Should you mistakenly pick a service that does not bring revenues, you are free to replace it with something else. With OHC's automation, control panels, single sign-on, and integration abilities, hosting becomes a profit center for you company.

Since none of us possess a crystal ball to determine which new technologies will appear in the next years, and since many of the new services are IP Based, isn't the smartest move to keep your options open?