In separate recent announcements, three hosting suppliers - Liquid Web, 1&1 Internet and XCalibre - have entered the cloud computing market, a trend that underscores questions about the future of traditional Web hosting.

The providers launching new offerings say the strong interest in cloud computing is disrupting traditional hosting models and reshaping the competitive landscape. But they also predict that many customers will stick with familiar legacy hosting models.

At HostingCon in August, Rackspace Cloud General Manager Emil Sayegh predicted that cloud computing will bring major change for the web hosting industry. “Over the next for five years, shared hosting as we know it will be made obsolete by the cloud,” said Sayegh. “I firmly believe it. What we need to think about is an environment in which cloud computing and dedicated servers coexist.”

Variety of Hosting Clouds

Sayegh's predictions appear to be already taking shape. Web hosting firm Liquid Web recently launched its Storm on Demand infrastructure-as-a-service offering. Liquid Web CEO and Founder Matthew Hill says Storm is comparable to Amazon's EC2 "but more user-friendly. Users can take a running server, resize it online and continue resizing as growth demands," Hill says. Customers are billed hourly.

Meanwhile, hosting industry behemoth 1&1 Internet has launched Dynamic Cloud Server, in which users can determine the basic settings of their cloud. Users can select up to four virtual processors with between 1 and 15GB of RAM, and between 100 and 800GB of disk space. Customers can also switch between Linux and Microsoft operating systems.

Coming to cloud computing with a different approach is Flexiant, a startup co-founded by Tony Lucas, who also established Web hosting company XCalibre Communications. While at XCalibre, Lucas built Europe's first public cloud called Flexiscale. Late last year, XCalibre sold its hosting business to Webfusion to focus on cloud computing. The cloud portion of XCalibre was transfered to Flexiant.

As well as maintaining the Flexiscale public cloud, Flexiant will develop software and services aimed at helping Web hosting, data center operations, and telcos to provide cloud computing services, said Alex Bligh, Flexiant CEO.

Cloud 'Cannibalization'

Perhaps it is inevitable that Web hosting companies are moving into the cloud. Liquid Web's Hill acknowledged that its cloud service would "cannibalize huge portions of our business." But he adds: "We can't be too concerned. If we didn't provide cloud computing, our competitors would." By 2011, half of Liquid Web's business will be from the cloud, Hill says.

All three providers agree that cloud computing extends their reach to new customers, such as organizations that want to put their enterprise applications in the cloud. Some traditional Web hosting buyers would also enjoy the flexibility of being able to buy and configure extra capacity on demand to prepare for traffic peaks, such as the streaming of popular sports tournaments.

In the traditional Web hosting scenario, such streaming video providers would need to partner with a content distribution network, says Flexiant's Bligh. With cloud computing, they can buy extra compute resources ahead of time.

Cloud as Self-Managed Solution

"Liquid Web caters to users who require a high level of management," Hill says. "The cloud appeals to the unmanaged people. We're getting interest from Liquid Web customer that have eight to 10 dedicated servers. Dedicated servers are fumbling pieces to handle. The cloud gives you flexibility and hourly billing. Backup and firewalls become simple for users to specify. Customers just need to tell us how many and where. In a Web hosting infrastructure, customers had to do it all themselves."

Hill says there are a number of experiences that Web hosting suppliers could bring to the cloud. "We're used to controlling cost without sacrificing performance." Hosting companies have a lengthy history of managing large numbers of users, and have automated many facets of their operations, shifting many support and site management duties from the provider to the customer.

The vendors are diplomatic when it comes to whether cloud computing will supercede web hosting.

1&1 CEO Sizes up the Cloud

Cloud computing, shared Web hosting, and dedicated Web hosting are three different ways to manage Web solutions that each have their advantages and disadvantages, says CEO Oliver Mauss of 1&1 Internet, one of the world's largest hosting companies with more than 10 million customer sites hosted on 70,000 servers.

"For many years to come there will continue to be a place for each of these services for several reasons," said Mauss. "Shared web hosting is most widely used for hosting web sites and has become more commoditized, so it will have some price advantages over cloud computing for smaller businesses. Cloud computing on the other hand, can be used to host a broad range of IT services outside of just Web sites, everything from specific computing tasks to using the server for data storage and hosting online gaming networks.

"There are also many customers who will be traditional dedicated hosting users that have difficulty adapting mentally to the idea of using a cloud/virtualized dedicated hosting service." Mauss adds. "Ultimately, cloud computing has almost all the advantages of dedicated hosting, but it has the ability to be more efficient for the hosting provider and more cost effective for the customer as they will often only pay for what they use."

Owning the Cloud Customer

Although there are technologies that enable hosting providers to move into cloud computing, many have reservations, according to Bligh.

"The ability to move between clouds isn't something that hosting companies want." To counter fears, Bligh says Flexiant will enable their hosting-providers-turned-cloud-providers to continue offering lengthy contracts rather than per-minute billing so they can get a sense of owning the customer. Flexiant will also offer these customers a range of management features to enable them to offer quality of service as a competitive differentiator.