Sites left hanging as Web host folds

Customers running their on-line retail operations in Pandesic LLC’s hosting environment said they were stunned to learn their application service provider was shutting down.

The abrupt decision by the Sunnyvale, Calif.-based ASP’s deep-pocketed parents, Intel Corp. and SAP America Inc., that profits were too far in the future to keep the company running, has left its 104 customers hanging.

“The landscape changed quickly,” said Tony Parziale, chief technology officer at on-line fashion retailer and Pandesic customer Folded Edge Inc. in Atlanta. Folded Edge was notified of the closure by e-mail July 28. “This came as a shock to their customers and partners,” Parziale said.

“We had no idea they were going to do this,” said Jon Dell’Antonia, CIO at OshKosh B’Gosh Inc. in Oshkosh, Wis., “It’s a highly unusual step to simply shut down instead of having an exit strategy.”

Pandesic hasn’t shut down its customer Web sites, and information technology managers said support from Pandesic was “still very good.” But the company said it was trying to place its employees in other jobs, a move that could jeopardize that support as the ASP’s staff hits the exit doors.

Details about a transition have been skimpy. Parziale said Folded Edge is concerned because it has received “no road map” yet, but he added that he isn’t panicking because he has received verbal assurances from Pandesic’s support staff that a transition plan is forthcoming.

Brett Lauter, chief marketing officer at Portland, Ore.-based eVineyards Inc., was equally sanguine. “We are in discussions with Pandesic about future steps,” he said. Other sources have said that they expect Pandesic to keep customers’ Web sites live until Jan. 31, at which time the plug will be pulled.

Neither Intel nor SAP representatives would comment on the options under consideration by Pandesic’s board of directors, which is led by Intel and SAP executives. Intel said that after three years of business, the board concluded that Pandesic’s business model was “not going to reach profitability in a timely manner.”

Pandesic takes approximately 2 per cent of a retail site’s revenue, plus low hosting fees. As Dell’Antonia put it, “The more successful we are, the more successful they would be.”

Dell’Antonia said that although OshKosh B’Gosh’s on-line sales are a relatively small part of the apparel maker’s US$429 million in revenue, they aren’t insignificant. With more than 100 other Pandesic customers generating cash, he said, it’s difficult to believe no one would be interested in keeping Pandesic’s business afloat.

He added that he would have considered new pricing with a new owner or with Pandesic to avoid the transition costs he now faces.

Pandesic’s troubles may hurt other ASPs as users reconsider ASPs’ viability. In the midst of evaluating an ASP for his site-selection business, Chris Engle, director of research at Angelou Economics Advisors Inc. in Austin, Tex., said Pandesic’s problems undermine “trusting internal operations to an ASP.”

But, Lauter added, “we’re no more wary of ASPs than we were before.” And Dell’Antonia said he is already searching for another ASP to pick up hosting duties.

The Pandesic experience does augur some changes to OshKosh B’Gosh’s on-line retail operations, however. Dell’Antonia said he’s inclined to bring some of them in-house for the first time.

Adam Braunstein, an analyst at Robert Francis Group Inc. in Westport, Conn., said that despite Pandesic’s sudden departure, IT executives should continue to use ASPs when appropriate. He suggested that users ask an ASP to show financial reports so they can ascertain the provider’s long-term viability. “But don’t bet your business on one,” he said.

Users said a key Pandesic advantage was its deep-pocketed parents. Parziale said the idea that “keeping Pandesic alive would be a drop in the bucket” for Intel and SAP had helped reassure him that Pandesic would be stable.

“It’s like two large parents fighting over a child and then just killing it,” Parziale said. “It’s sad.”

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