Users demand more specialized offerings

A recession and a slump in infrastructure investments have compelled MSPs (managed service providers) large and small to re-evaluate their offerings and find new ways to provide customers with improved hosting efficiencies.

Fueled by the turmoil surrounding Santa Clara, Calif.-based Exodus Communications Inc.’s bankruptcy, MSPs are recruiting wary customers away from the market leader with redefined services and bundled, hosted methodologies that support increasingly complex systems above the operating system.

Seizing upon this trend, IBM Global Services, based in Somers, N.Y., will announce next week at Internet World in New York a new e-procurement offering aimed at small and midsize businesses, industry sources said. The new service is designed to get Web-based e-procurement systems running within three weeks, according to sources.

Users have shifted their expectations and providers want to appease MSP customers who demand sophisticated Web site support and hardware integration, said Jeanne Schaaf, an analyst at Forrester Research Inc. in Boston. “There’s a lot of dissatisfaction in the [MSP] market today. Managed services should be a value-add by definition,” Schaaf said. “You get a lot of hosters who put a stiff arm to clients when it comes to applications.”

Schaaf also said a rash of service provider failures has led to the perception that outsourcing is unreliable, pushing MSPs to reveal internal technology information to customers and accept a greater share of performance accountability.

Exodus is moving fast to respond to changing conditions, and company officials said the risky nature of migration to another MSP will encourage its enterprise customers to hold off on any contingency plans for the moment.

“The worst case scenario is that we will stop operations,” said David Asprey, director of strategic planning at Exodus. “There is absolutely no plan where that will happen.”

Exodus is seeking new investors or to be acquired and is slashing its hosting empire, officials said.

The co-location giant has halted construction of 10 Internet datacenters and announced the liquidation of four nonoperational entities in Europe.

Analysts said Exodus’ troubles will extend far beyond the ramifications of the burst dot-com bubble that dragged down its fortunes.

“I suspect that [Exodus] will be a bit of a shadow of its former self,” Forrester’s Schaaf said. “There are customers who are seriously concerned about their situation. They have done huge damage to their brand.

Even before filing for bankruptcy protection in September, rumors of Exodus’ struggles sent a jolt through existing and potential customers months earlier.

Betasphere Inc. Co-founder and CTO Aylon Engler said Exodus’ shaky financial situation prompted his company to abruptly pull out of a signed contract in favor of Waltham, Mass.-based NaviSite Inc. Based in Palo Alto, Calif., Betasphere provides software and services for product development.

“Clearly this affected the decision,” Engler said. “[We were] concerned with [Exodus’] cash position and burn rates and this was back in March.”

Betasphere chose NaviSite due to its peering arrangements with “top-notch” carriers, Engler said. NaviSite manages most of Betasphere’s datacenter.

Next week, NaviSite will unveil a new, four-step set of Site Migration Management Services.

In contrast to the startups, IBM Global Services is reaping the rewards of the trusted system integration and legacy reputation of Big Blue.

Released last week, consultancy Tier 1 Research’s “Web Hosting Bible” report predicts IBM will be the 2002 market leader and 2001 managed service leader. The report cites Exodus as the overall 2001 market leader.

Jim Corgel, general manager of IBM Corp.’s e-business hosting services, said customers should not shy away from new applications as focus shifts from time-to-market to cost savings.

Midland, Mich.-based Dow Chemical Co. recently signed a five-year Web hosting deal with IBM Global Services that covers development, testing, and production of Dow’s corporate and customer information extranet site.

The addition of more robust applications during the past year spurred demand for Internet infrastructure and expertise, said Tom Haynes Jr., enterprise systems operations service leader at Dow.

“Dow is expecting IBM to leverage not only its existing infrastructure, but also the knowledge and expertise gained through its work with previous customers to create cost reductions and ease of use,” Haynes said.

EDS Corp. has its eye on a slice of IBM’s hosted market dominance, opting to play up its agnostic nature and hardware flexibility as bargaining chips to win business from Big Blue.

Steve Lapekas, vice president of hosting services at Plano, Texas-based EDS, said it can outrace telecommunications entities because of its experience with making sense of back-end to front-end headaches.

The race may get muddled in spite of EDS’ acquisition of MSP Digex from Worldcom Inc., analysts said. Worldcom maintains its own hosting division, leading to a degree of customer confusion, analysts said.

Lapekas said EDS will roll out a packaged Web hosting and managed services offering early next year that will bundle content delivery and stress testing with transaction automation and verification.

Some MSP users, such as MFN customer Russ Lewis, executive vice president and CIO of New York-based financial services broker GFI, want to see increased differentiation among managed services offerings. Vendors need to offer more automated operations as well as more performance management capabilities, Lewis said. “That is the next level the MSPs need to get to,” he said.