When Mark Heinrich and I started our last company in 1999 we rented space and a network drop at Exodus data center in Jersey City. We bought servers, racked them, and installed a bunch of equipment at the office, including a phone switch and an email server.
At the time, most small businesses without engineers on staff would just go without infrastructure or hire someone to install a bit locally, probably not properly backed up.
In the last 10 years, a relatively short time, everything has changed. There are now excellent hosted services up and down the food chain of information processing. At Phanfare, we use Datapipe managed hosting to provide us with servers and bandwidth. I have physically been in the data center twice. We use Amazon’s S3 data service to reliably store data (I have never been to their datacenter). We have our email scrubbed of spam by Postini and we just subscribed to a hosted support offering from Parature. Our payment processing is outsourced with Ebay’s Payflow Pro product.
Even our accounting is hosted. We scan our invoices, shred everything, and email PDfs to our bookkeeper, whom I have physically met once. She in turn provides us access to our books via Windows terminal services.
Our faxes go to an outsourced fax service. Our phone service is voice over IP, provided by M5. They ran a T1 to our office with DSL backup and provide us with phone service that is so reliable that you can cut our T1 line and the phone call stays up. We bought the Cisco IP phones. We have a support organization in Saint Louis that is on the same phone system, completely transparently.
What is remarkable about all these services is that they are all excellent. We have had minor issues with Datapipe, and sometimes S3 does go down, but by and large, we are happy customers. The age of hosted services has arrived. If you are starting a business today, you can find a good hosted service for just about any software you might consider installing in house: email, blogging, intranet wiki, word processing, file storage, backup, to name just a few.
Some of the services we are using, like Datapipe, seem somewhat primitive compared to today’s hosted offerings. Rather than rent machines by the month that are physically dedicated to us, you can now buy a la carte infrastructure from Amazon or a fully hosted development stack from Google.
What this means is that the barrier to entry to build a business, especially a web-based business, is very low. That means competition is going to be fierce, and it also means that entrepreneurs don’t need VC money to start a web business. With a few thousand dollars and a smart dedicated engineer, you can build a prototype and see if it gains traction. Even monetization is available in hosted form from Google and a variety of other ad networks that will run ads on your site and send you money.
The age of hosted services will also empower and enable groups that have traditionally not had access to high quality IT services. For example, the average public school lives in the dark ages of information processing. But now, there are great opportunities to build a world class hosted solution that a school can create an “instance” on and run the whole school. It also means that we can export one of our greatest resources, information processing and software design, all over the world.
Consumers are the beneficiary as well. Gmail, Google docs, and Phanfare are all hosted services that can provide a consumer with a portable computing experience that is not tied to a particular computer or place. That is a great benefit to consumers because the personal computer, whether Mac or PC, is really not a consumer device. The PC is a hard-to-manage, hard-to-maintain engineering tool that will eventually let you down in some way or another. But with hosted services, you don’t care because you just move to the next computer and sign-in.