We saw a flurry of merger and acquisition activity in 2019 in the hosting space, signaling the maturing of the market. This type of consolidation among complementary companies makes good business sense. As with any strategic partnership, those in the hosting industry seemed to be influenced by companies seeking to:
- Acquire New Customers
Effective alliances and new vendor relationships can stimulate new opportunities, increased market share, and a boost to profitability.
- Expand Geographic Reach
This goes hand-in-hand with new customer acquisition and increasing revenue, as expanding geographic reach tends to be the first step towards each of these goals.
- Access New Technologies
Access to emerging technology is a must in web hosting and strategic partnerships can be a cost-effective way to gain as much without depleting resources.
- Share Resources
This is a way for web hosts to collaborate and innovate without bearing the entire cost burden alone.
- Increase Revenue
Aligning strategic objectives and sharing complementary resources can broaden market access and activate new revenue streams.
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The flurry of consolidation and acquisition activity in 2019 could signal some big changes on the horizon. I’ve talked about a few of them here and here. I also ran a series of interviews that talked about some of the other interesting motivators for companies to partner moving forward. The general thoughts about consolidation and acquisitions are as follows:
- Larger players will leverage their weight as the space matures and newer entrants shake things up by solving new problems and innovating.
- As the hosting space matures, we will see a trend toward fewer companies that can provide greater value and exceptional service.
- With continued acquisitions, site migrations could be a major pain point for companies that don’t own their own data centers. This could lead to increased churn.
- Acquisition is a great way to grow fast and cut costs. Economies of scale will prevail as it becomes harder to acquire new clients organically and margins get thinner.
- Acquisitions initiated by larger equity firms will have varying degrees of long-term success; those that focus on profits over technology or quality of service are not likely to stand the test of time.
- In general, acquisitions are a positive signal for the market as the industry matures, though there is the risk of over-consolidation, leading to “mega hosts” that target the lowest common denominator.
The reality is that acquisitions in the hosting space will continue as the industry continues to mature. We will likely also see more mergers and acquisitions from other industries that have aligned customer bases and that can provide complementary services or features.
Acquisition Highlights from 2019
In June of this year, WP Engine, the WordPress Digital Experience Platform, acquired Flywheel, a WordPress hosting and management company, creating the largest Agency Partner Program in WordPress. This combination of strengths yields an enhanced WP Engine Digital Experience Platform for WordPress with the best creative and business workflows for agencies.
In August, WP Engine acquired assets from Perfect Dashboard including the AutoUpdater product.
Also in August, web host Automattic acquired Tumblr, potentially creating a migration path to WordPress for end users who need more flexibility or augmentation to their Tumblr social. It’s also an indicator of bigger things to come – namely, Automattic taking aim at the SaaS market in a bid to go toe-to-toe with the SAAS site builders Wix, Weebly, Squarespace, Facebook, etc.
As recently as September, Liquid Web and Nexcess joined forces, providing Liquid Web clients access to the technology and scalability of Nexcess Cloud while Nexcess clients gained access to Liquid Web plans and services.
Acquia (think Automattic for Drupal) acquired Cohesion to continue the drive of simplifying site and page creation.
The mergers and acquisitions trend shows no signs of slowing as we move into 2020. If anything, we can expect the activity to ramp up as the industry continues to mature, consolidate, and thrive. Organizations with strong teams, innovative technology and stand-out customer service stand to win in the current web hosting climate.