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In the eye of the storm
Certainly Exodus is not alone in having a depressed stock price, but considering the performance of the company and the low stock price, do
you feel that you've let down your shareholders?
People keep talking about a glut of bandwidth. Is there not a glut?
So how will the last 18 months be looked back upon--particularly for
those with shorter memories who think this is the end of the world?
What was different about this one? How do you feel about the health of the overall hosting industry?
Why do you feel that outsourced services such as Web hosting do well
in an economic downturn? The dot-com demise severely impacted your company and other Web
hosting firms. But Exodus and others quickly turned their attention to
the Fortune 1000 and big business customers instead. What are these big
businesses doing differently today than they were doing two years ago?
What do the struggles of Loudcloud say about the managed services
business?
Well I think that if you look at Exodus, the company is very popular.
Exodus has a great brand. And when there's a concern about a whole market,
often it's the leader in a market that takes the brunt. And I think that's
what happened in this case...I think that we're all disappointed in the share
price. We're all shareholders. We all have options. So we're all disappointed in
where the stock is. If you ask whether you think it should have been at $89,
that's one question. But do you think it should be at $1.20? And the answer is
'No we don't think it should be.'
Exodus is the one of the few remaining independent Web hosting firms.
Others are affiliated with communications carriers. How much longer can the
company stand alone?
Well, we think there are advantages to being independent. This is all we
Do; we focus on outsourcing and Web hosting. We do have the advantage of
having access to Global Crossing where we have access to a great network. If
you look at some cases where there was a combination of a carrier and a
hosting company, it didn't always work out to the advantage of the hosting
company. We have sufficient cash and we can stand alone for a long, long time.
No, I believe there is. Each time that we go to acquire more bandwidth,
we're finding that this year's prices are less than last year's prices--and that they're very competitive with one another. And I restrict
(that statement) to the United States just because there still is a
concern about having enough fiber over in Europe and Asia and some
countries that require more fiber, which is why we have to be careful
about where we put data centers.
We've seen this almost every single decade--whether it's the
semiconductor industry, where there are concerns about PCs, or it is the
servers and the software industries, where we have seen downturns. What
often does come out of that is stronger companies--companies that have
revisited their own business models, that have revisited for themselves
what it is that's core to them. They've looked at their own
organizations, their use of technology. And so we pull out of that. But
we have seen this before.
In the past, there were more warnings. I think the impact was better
appreciated. This one appeared to come very quickly and stunned many
people in the industry by its volatility and by its extent. However, the
actions we've taken are the same: We're downsizing, we're focusing on
costs, we're taking another look at those travel budgets. But we have
quite a few companies where, as you implied, the management has not been
through this before.
I think the hosting business is a very good business. I think there has
been some shake-up in the business. I think that there are companies such
as Pilot Networks or PSINet that had problems with their business. I
also think you're seeing a general concern relative to regional players
that this business is consolidating, that it's now focusing on managed
services, and we're also focusing on being global. But the business is
still a very good business.
If you look at the expenses of running a Web site--in almost every
single case--you spend less money if you do it with an outsourcer than
if you do it yourself. That case was made many years ago with Perot and
EDS and the like. And I would say it's even a stronger case today.
As the enterprise began to more effectively use the Internet and then
outsource into companies such as Exodus, the learning that we had from
the dot-coms could be applied to the enterprise. I would often have CIOs
say to me, 'Well tell me what's going on in the data center. Whose
servers are you seeing, what is the software you're seeing? How many
servers do some of these companies have?' So they could get a sense
themselves if they were to build up on the Internet that they would have
a sense of what they were looking at going forward. They were different
in that they wanted professional services, they wanted consulting, they
wanted service-level agreements. Many of the dot-coms had not asked for
that. And so they started to ask for many of the services that they
expected in their legacy systems, their mainframes and the like. And
they wanted those same services in the Internet.
We would say that the managed services business is a good business. But
we do have an advantage over Loudcloud and that is that we do own the
data centers, we do run the network, and we do help manage the customers'
site. Managed services essentially sit on top of the rest of our
portfolio. So if a customer asks us to completely manage their site,
which we do for quite a few customers, then we can let them know if it's
the Internet that's the issue. If there's a system that's failed in
Chicago, let's say, we know if there's a fiber cut or if some ISPs are
having issues. We can provide them with guidance on their site versus
the Internet. Essentially the Loudcloud customer is dependent upon the
hosting company. So that may be complicating the issue for some of these
MSPs (managed service providers). But I think the MSP is a natural part of a hosting company's
portfolio.
