Dan, thank you for taking some time out and answering my questions as I know you are a traveling man.

1. Can you first tell us what your role is at Tier1, what you do and what your company does?

Tier 1 Research is an industry research and analysis firm, covering the Internet Infrastructure space. We concentrate on hosting, colocation, data center real estate, peering, content delivery networks, and data telecom issues. We provide daily, quarterly, and annual written research to our customer base, which include most major providers of Internet infrastructure services, as well as a large number of financial clients, many of whom own large stakes in those providers.

2. It seems that the big talk in the hosting industry is about Rackspace going public. Do you think their stock will pop or flop? Additionally, now that Rackspace will be a public company and have to answer to shareholders do you think they will be able to justify what are likely high staff costs that provide the “Fanatical Support” for which they are known?

Rackspace is an outstanding firm with very good numbers - they will, without doubt, have a successful IPO. The “pop” we normally see may not occur due to the Dutch Auction format of the IPO - the opening price should be the market price. This will maximize the IPO for Rackspace’s owners and investors. Rackspace was careful to talk about fanatical support as the differentiator when they filed their S1. While some shortsighted Wall Street analysts may have a problem with it, I don’t see Rackspace’s leadership moving on the issue - nor should they.

3. Now that Rackspace is going to be a public company do you see it as a possible acquisition target, specifically by a company like Akamai who shares so many customers with them?

An IPO is also a prospectus for acquisition. Akamai is an extremely unlikely M&A partner for Rackspace - a private equity firm would be the best candidate. That being said, I think they will end up going public rather than being acquired.

4. When we talked a while back you thought for sure that Microsoft would acquire Yahoo. How surprised are you that Microsoft walked away and why do you think they didn’t go hostile?

I think Yahoo has made a terrible mistake. Their executives put their own self-interest ahead of their investors. Microsoft offered a fair price and was rebuffed, in a move that hurts Yahoo’s stockholders. Expect numerous stockholder lawsuits now. Hostile takeovers are very difficult these days due to the numerous “defenses” available. Thats why they are so rare. They are also costly.

5. We are seeing a lot of products flow into the market place that offer utility computing or cloud hosting (I’m not really sure on the difference between the two). We now have Amazon (EC2), Servepath (Gogrid), XCalibre (Flexiscale), Sun (Network) and IBM’s announced Blue Cloud. Do you see this trend continuing and do you think this Utility computing/cloud hosting will eventually replace dedicated servers?

Tier 1’s forthcoming report on Cloud Computing will help explain that difference, Ross. I think there is a real possibility that cloud computing will replace dedicated servers at some point in the future. We certainly are not there yet - its at least 3 years out. Cloud storage is far hotter, at least right now. I think we’ll see more cloud storage offerings like Amazon’s S3, Nirvanix SDN, and Rackspace CloudFS in the next few months. One of the key reasons that the server side is not quite ready to go is that licensing has not quite caught up yet, especially on the Windows side. I think that is going to change in the next 6 months.

6. Do you think enterprise customers will be open to using these new hosting solutions or new storage solutions like Amazon S3/Nirvanix? We know Mozy saw some success with their GE deal and VMWare has been gaining a lot of ground in the enterprise market both of which have traditionally untouched by major players.

Mozy is really EMC, so enterprise success should not be a surprise. Nirvanix just won a Fortune 10 deal. I think we’ll see more enterprises embracing storage-as-a-service, because storage demands are increasing so rapidly. Software developers are rapidly adopting these services as well, which will help them grow very rapidly.

7. On the topic of Nirvanix and Amazon S3 do you still think Nirvanix continues to offer a better solution to companies that need a storage service? Is there anything Amazon can do to show that they are a better company for the job in your mind?

Amazon needs to hire a general manager for AWS from the hosting industry. Nirvanix is full of people who understand that a solution like S3 is not just “cool technology”, but its also something that must be operated reliably and supported. I don’t think Amazon totally gets the importance of support and reliability yet - they charge 20% extra for support of uncertain quality. They just introduced a dashboard to allow folks to see the status of the service, which is great, but shouldn’t that have been available on day 1? Amazon has made a lot of technology and positioning promises that have been misleading or simply hype, coasting on their name.

8. Layeretech recently announced they are buying Fastservers. These two companies serve two entirely different markets with Layeredtech offering cheap unmanaged solutions and Fastservers going after more of the small managed hosting customers. Do you think this is a good buy for Layeretech and what do you think they need to do to make sure it is successful?

Consolidation is a fact of life in this industry. LT wants to do managed hosting and Fastserver’s founders wanted an exit and monetization - the deal works for everyone. Most mergers and acquisitions are not successful, and the hosting industry has had their share of disasters. Slow but steady integration by a team of experienced managers is usually the key. I have great faith that the team at LT can make this one work.

9. The CDN wars continue to rage on with rumors of Level 3 going as low as $.08/GB, do you think they can beat the competition on pricing alone? Who do you think is best positioned in this space? Can you share your thoughts on the Limelight and Akamai patent dispute which Akamai recently won?

The LLNW/AKAM patent dispute is far from over and will keep going in the appeals courts, possibly for years. As far as Level3 - I don’t think they can win on price alone. Features and reliability are hugely important in the CDN market. One thing to keep in mind is that, while 8 cents is low, its not like the bottom dropped out. Two years ago, you could get 11 cents on the largest deals. Now, the deals are larger and the standard 10% decay in telecom pricing has led us to 8 cent deals. Thats not disruptive pricing so much as the continuation of a trend. There is not CDN price war - there is a very competitive market that existed long before Level3 purchased any CDN assets.

10. With the current market downturn I can see two things happening. Either companies reduce their IT spending which could hurt a lot of managed hosting companies or companies will turn to managed hosting companies to outsource their infrastructure. Which do you think will happen and why?

The evidence so far is the latter. We don’t see any shortage of managed hosting deals - most folks are doing just fine. IT spend and managed hosting do not seem to be tightly correlated. Colocation, on the other hand, seems to be benefiting from the bad economic times, with enterprises canceling builds in favor of doing business with third-party datacenter firms offering colo and datacenter real estate.

11. If the latter happens what hosting company do you think is best positioned to gain customers who want to outsource their IT infrastructure and why?

Too early to say. Its really a factor of whomever has the marketing agility to recast their message on the fly, while continuing to offer the same services mix.

12. What company in the hosting space do you think is most exciting right now?

Thats a tough one - there are so many great companies in the hosting space that are executing very well in a tough business climate. When you have multiple firms delivering 30%+ year/year revenue increases while doing M&A and introducing new products, its tough to pick a single winner.

13. Where do you see the hosting industry 5 years from now? Who will be the dominant players in dedicated servers, CDN and managed hosting? Who do you see buying whom?

We’ll certainly see more consolidation and a much larger (in terms of revenue) industry. The credit crunch will have eased, so we’ll have more datacenter builds, which will increase competitiveness in colocation.

14. When you aren’t busy being the god of research for the web hosting industry what do you like to do? Any major hobbies? What are your favorite blogs to read?

I like to spend time with my family, attend technical conferences to stay informed, read, play video games (I need to buy GTA4), and read various political blogs, not to mention DIGG. In other words, I’m a geek.

15. When you go into your meetings with Microsoft do you take your Macbook and iPhone or do you leave those at home?

Always! I have never gotten a really negative comment, just some good natured kidding - the hosting team at Microsoft is incredibly laid back and very cool. The fact that I have a licensed copy of Windows and Office installed doesn’t hurt. Most folks don’t realize that Microsoft’s revenue from selling software to Apple users is considerably higher than that of most stand-alone software firms. Its not like sending a FedEx shipment to UPS. On the other hand, walking in to the Zune development building with an iPod or the Xbox product area with a PSP might be hazardous to your health.

16. Random thoughts or comments?

Keep up the great work.