A year ago, British telecom company Cable & Wireless was barely a blip on the Web hosting screen. But it had big plans.
The carrier, with only eight data centers dedicated to Web hosting, had just purchased Digital Island, picking up 10 hosting centers and an established content delivery network (CDN).
It also had been eyeing Exodus Communications, the leader in the Web hosting market with dozens of data centers and thousands of customers - not to mention worsening financial problems. Last fall, after Exodus filed for bankruptcy protection, C&W swooped in to pick up millions of square feet of data center space and Exodus' established reputation for a bargain price.
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Now the telecom company, which accounted for less than 5% of the Web hosting market in 2000, is battling with IBM Global Services for the top spot, analysts say.
"And they've done it for pennies on the dollar," says Jarad Carleton, program leader for Internet infrastructure at market research firm Frost & Sullivan. "If I were an investor in Cable & Wireless, I'd be particularly pleased."
Business customers, especially those that remained faithful to Exodus during its tough times, also should be grinning. By picking up Digital Island and Exodus, C&W is poised to offer a true end-to-end spectrum of global IP services from network services to content delivery to managed hosting. And the company is coming to the market in a strong position with about $3.8 billion in the bank - a prime situation for a Web hosting company surrounded by peers struggling to reach profitability and others going out of business.
Not that it's all smooth sailing. C&W faces the monumental task of integrating its acquisitions into its operations and corporate culture. And it must do this in an economic environment that hasn't been kind to carriers or Web hosting companies.
Nevertheless, C&W remains committed to the vision CEO Graham Wallace laid out in 1999: to focus on serving enterprise customers with IP and data services. With its hosting assets outperforming expectations, Wallace says the company is ready and well-positioned to heighten its focus on IP services in the U.S.
Toward that end, the company plans to sell its domestic voice business and certain data services, a spokeswoman says. Its IP communications services will be integrated with the hosting and content distribution services now being delivered in the U.S. under the name "Exodus, a Cable and Wireless Service." Former Exodus CFO Bill Austin heads the new division. The integration is slated to be completed by July 1.
Which data services will be relinquished is unclear, although the spokeswoman says the company is reviewing the profitability of domestic voice services; national frame relay and ATM; specific private-line circuits; and Internet access services. The company says it intends for the transition for affected customers to be "timely and seamless."
Meanwhile, C&W has trimmed its staff by eliminating overlap of responsibilities and figured out how best to marry the expertise of its Exodus and Digital Island acquisitions, says Duncan Black, director of corporate solutions strategy.
As for data centers, Black says C&W chose 29 of Exodus' 44 data centers - 26 in the U. S. and three abroad - and now has 46 data centers worldwide. There was customer concern about transitions, but C&W said in its year-end earnings statement that more Exodus customers than expected stayed put, helping Exodus to pull in higher revenue than anticipated.
Still, there was churn. C&W wouldn't be specific about customer numbers, but Tier 1 Research estimates that Exodus had about 3,700 customers at the end of September 2001 and ended March with about 2,200.
Sean Armstrong, senior Internet manager at software maker Network Intelligence in Walpole, Mass., says there have been some "hiccups" in service as C&W pulled in its Exodus assets, but that overall the transition hasn't been as painful as he expected.
"When Exodus was going under, we had plans in place to pull out of there as soon as performance or connectivity problems arose. Fortunately, they never did," says Armstrong, who collocates servers at an Exodus facility in Massachusetts. "It appears that lots of other companies didn't wait to pull out. The Exodus/C&W [collocation] facility is a pretty lonely place now."
As for services, customers will see more from a single provider, C&W's Black says. For example, Exodus will no longer resell Mirror Image content delivery services, but customers can use Digital Island's CDN.
"It's not like one large hosting company taking over another large hosting company," Black says. "The companies all had different core competencies and are very complementary in terms of what Graham Wallace's overall strategy was for e-business infrastructure."
Ulrich Seif, CIO at National Semiconductor in Santa Clara, which hosted its external Web sites with Exodus, says he looks forward to using the additional services and the wider reach that are now available.
"We have been encouraged by our early experiences with them," he says. "We will look to be able to leverage their global caching services down the road with a little architecture redesign on our part. We also look forward to their established network in Asia for better performance for our growing customer base there."
Seif says that while C&W obviously is striving to be the leader in Web hosting and IP services by acquiring companies and establishing partnerships, "we'll have to see how well they manage that growth."
So far, businesses and analysts seem to think it's doing fine. While some customers reportedly have complained about changes in billing structure or juggled account managers, most seem satisfied.
Covisint, the online automotive industry exchange in Southfield, Mich., has been hosted at Exodus for about two years and recently signed a three-year extension with C&W. Kevin Vasconi, CTO at Covisint, says the online exchange was kept well-informed of all the transitions.
"Our highest priority is around preventing any disruption to our customers, and there was absolutely none," Vasconi says. "We spent a little more management time because we had to keep informed and aware of what was going on. But my account rep hasn't changed, what I buy hasn't changed and where I host my servers hasn't changed."
Managing things, however, is different than growing a business, which is where C&W will have to focus in the months ahead. While it's bringing a suite of complex services to the table, businesses might not be ready to buy the high-end offerings.
"C&W is facing the same hurdles as everybody in this market: trying to get customers to open their wallets," says Melanie Posey, program manager for Web hosting at IDC. "Nobody is banging down the doors to buy services."
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