The range of hosting services was originally limited to self-hosted servers, co-located server hosting, and shared hosting. In 1994 and 1995, Best Internet Communications rose from nothing to hosting 18,000+ websites on a pair of Pentium servers, which were the most powerful servers of the time. Best also offered dedicated server-hosting through co-location, dedicated broadband connectivity, and upscale premium services.  

Most of the websites hosted by Best were of the shared-hosting variety. All of these sites shared the same server, the same hard drives, the same filesystem, the same RAM, the same CPUs, the same network connections, and so on.  

It was not uncommon for any one of these websites to be slashdotted, or containing a link to the site from a very popular site to the hosted site. This would cause a large spike in traffic to the one out of the approximately 18,000 sites, and a performance hit to the others. As the quality of the sites grew and demanded more resources, their administrators would move to dedicated co-located hosting or self-hosting.

Co-located hosting

With co-located hosting, the customer rents a secure cage within a larger hosting facility (data center):

Figure 1.1 – A typical server rack, commonly seen in colocation

The customer can install and manage the machines of their choice. Some co-location facilities offer, for additional fees, remote hands service, where the customer can call the hosting company and one of their engineers does whatever the customer requires to the hosted servers. The cages are locked so that other customers can't gain access to other customers' equipment.

Self-hosting

With self-hosting, the customer buys a full-time dedicated broadband-style connection in a physical location of their choosing:

Figure 1.2 – Indian Railway 139 server room (self-hosting)

The customer ends up building their own kind of data center and installs and manages servers and other equipment on-premises.

Data centers

The benefits of a professional data center are numerous, and ultimately, the trend became that just a few companies, relative to all the companies with an internet presence, provided data centers, and the remaining companies paid rent for dedicated, shared, or premium hosting. A professional data center provides rich internet connectivity (more than one provider, faster connections), clean power, battery-backed-up power for 24/7/365 uptime, back-up generator-backed-up power for longer brownouts or blackouts, fire-suppression systems, a controlled climate suitable for keeping equipment at the proper operating temperatures, multiple physical locations, a professionally managed Network Operations Center (NOC) and technical support, and security in the form of guards, cameras, and fingerprint, handprint, and/or retina scanners:

Figure 1.3 – A server room at CERN (Switzerland)

The companies that ended up building and running the majority of data centers are Google (Google Cloud Platform), Microsoft (Azure), Amazon (Amazon Web Services (AWS)), Yahoo! (once upon a time), and lesser players, which include boutique hosting companies, regional hosting companies, and companies that require security beyond what a hosting company can provide (for example, banks and financial institutions, governments, and so on).

Amazon had a unique need for data centers. They are one of the largest online retailers in the world, as well as the largest data center developer/owner. The number of servers, the uptime, the security, and the reach that they require drove them to build data centers throughout the country and then the world.

Google has a unique need for data centers as well. They are the largest search engine and advertising company in the world. In order to be reachable, Google needs servers in as many physical places as possible. In order to be fast, Google needs many servers—at least enough servers for distributed search index processing in each of its geo-locations.

Companies such as RackSpace and Level 3 were originally built as data center providers. Their specialties included co-location facilities, dedicated server hosting, remote hands, NOCs, nationwide-dedicated fiber-optic backbones, clean and blackout resistant power, and very rich connectivity to various other networks, including AT&T, Verizon, and Comcast. They found themselves with the infrastructure to follow the trend toward virtualization and began to offer these cloud services.

The highest cost of providing data center services, and this passed on to the customer, was initially bandwidth. The providers paid for bandwidth by the megabit, plus a monthly cost of maintaining the physical connections that carried this bandwidth. As the providers built their own private infrastructure to carry data between their own data centers around the world, the cost became a flat rate, or a fixed cost, for a significant amount of the total bandwidth used. This allowed the price of bandwidth to decline to the point where it became a minimal consideration for hosting.

These companies ended up building a comprehensive infrastructure for dedicated hosting. It turns out that this infrastructure is ideally suited for virtualized product offerings, too.