Cradle-To-Grave Site Management

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August 28, 2000 (10:50 AM EDT)

By Jade Boyd,

Chris Wong's e-business had been operating for less than a day when he started to consider farming out the management of his site.

Wong, CEO of SkillsVillage.com Inc., had assumed he'd have a few days to get a firewall in place after launching the site. But within hours of the launch, the site was taken over by hackers, who used it to mount an attack on a Canadian multinational. This prompted a call from the FBI.

"That was the first lesson I learned," said Wong, who now outsources the site to Loudcloud Inc. "It was one of those things where you don't know what you don't know."

Wong and others are turning to a new type of outside expert that builds and manages site infrastructure on a custom basis.

In the 15 months since Wong launched Santa Clara, Calif.-based SkillsVillage, which helps companies find, hire, and manage contract workers, more than a dozen companies have begun offering Web infrastructure management services, and some of the biggest names in IT outsourcing have also joined the fray. While no two companies provide identical services, their promise to customers can be summed up in three words: peace of mind.

"If I have something that's critical to my customer, then I need peace of mind that our back-end systems are up to that level," said Satyen Kothari, CEO of Trapezo Inc., a Web content ASP that launched in May. Kothari recently hired Intira to host a site at its East Coast data center, and while Trapezo's still using Web hoster AboveNet for its Silicon Valley operations, Kothari's considering outsourced services there as well.

Infrastructure outsourcing is an outgrowth of Web hosting. Unlike ASPs, which provide outsourced software services, infrastructure outsourcers provide the equipment, Internet access, and technical support for a customer's website.

Demand for site management services is being driven by two factors: the overall growth of e-commerce and the shortage of high-tech labor. Companies can't afford downtime, yet they're finding it nearly impossible to attract and keep the technical specialists they need to manage a site.

"You have to make sure these systems are up all the time, which means you need network people, security people, database administrators who are available on a 24-7 basis," Kothari said. "If you have employees doing it, what do you do when they go on vacation? You cannot have backup employees at every position."

As with any emerging market, many companies offering Web infrastructure services are coining their own terms to describe what they do. Analysts said it's too early to determine who the market leaders are, and they say different types of services will be needed by different types of enterprises.

As divergent as they claim to be, many of the services are similar, and most providers fall into one of several categories.

The first is collocation providers, which have traditionally offered little more than electrical power, rack space, Internet access, physical security, and air conditioning. While some companies like Exodus Communications Inc. (stock: EXDS) and GlobalCenter Inc. are beginning to offer more site management services, IT and e-business managers will likely have to deal with multiple vendors to get the kind of comprehensive service available from aggregators. Examples of collocation providers are AboveNet, Concentric Network Corp., and Equinix Inc. (stock: EQIX).

The second category is managed hosting providers, which take direct responsibility for every facet of site infrastructure, controlling everything but the application and content. Most control their own dedicated networks. While companies that use these services must give up control of their site hardware, they deal with only one vendor and get one global service-level agreement. This group comprises both established companies, such as Digital Island Inc. (stock: ISLD), and newcomers, like Intira Corp. and Verio Inc. (stock: VRIO).

The third category, infrastructure integrators, has some of the most notable entrants in Web infrastructure outsourcing: LogicTier; Loudcloud, the brainchild of Netscape founder Marc Andreessen; and MimEcom. Unlike managed hosting providers, which handle everything in-house, infrastructure aggregators typically use their own software tools to tie together services from well-respected equipment, collocation, and network partners like Sun Microsystems Inc. (stock: SUNW), Exodus, or Level 3 Communications Inc. (stock: LVLT).

Another group is application management providers, which provide a service that most infrastructure outsourcing providers let customers manage on their own. Companies like AppGenesys Inc. and Aptegrity Inc. take a hands-on approach to application management, offering quality assurance testing and other application management services. Unlike Aptegrity, AppGenesys keeps a foot in both worlds, offering integrated application and infrastructure management services.

Finally, there are business service providers -- established vendors such as EDS Corp. (stock: EDS) and IBM Corp. (stock: IBM) -- that are beginning to offer Web infrastructure services. Although these companies are large and well-funded, analysts said businesses may be more likely to find top e-commerce talent at smaller companies such as Loudcloud. But large companies that are looking for both traditional systems integration and complex Web application management may benefit from their experience. Others in this category include consulting firms such as Deloitte & Touche and KPMG.

How do IT and e-business managers choose from this broad selection of outsourcing partners? As with any IT outsourcing decision, experts suggest that managers first conduct a detailed analysis of their technology requirements, existing in-house expertise, and the overall business plan.

Time Warner Inc. chief technology officer Michael Dunn, who serves on a technology advisory board for AppGenesys, suggests examining each element of the online business from "concept to production" before determining which areas to outsource to which provider.

"In any of this, you really look at what your core model for your business is," Dunn said. "What's your intellectual property? What is important to you out of this entire process, and what can you entrust to somebody else?"

The need to get a new service to market quickly is often a consideration as well, he said.

"What I see going on a lot of times is the time-to-market issue and a core competence issue," Dunn said.

That was the case at BlueLight.com, the online venture from Kmart, which is outsourcing its infrastructure services to MimEcom.

"Our core competency is not wondering which app server is up," said Brian Sugar, BlueLight's chief Web officer. "Our core competency is saying: 'Which Martha Stewart towels sell better?' At the end of the day, I believe we should have the in-house talent in merchandising rather than in Oracle database administration."

The cost of outsourced infrastructure services depends on factors such as site complexity, traffic volume, and service-level guarantees. Fees are charged monthly, and while the annual costs may be daunting for start-ups, Wong said costs can be offset by increased revenue as the company grows.

Sugar wouldn't say how much Bluelight is paying MimEcom Corp., but MimEcom said its average contract exceeds $1 million per year, and deals can run as high as $2.5 million per year for large sites. Bluelight, which averages about 250,000 hits per day, is one of MimEcom's largest customers.

Intira's prices are comparable to MimEcom's, and Wong said SkillsVillage's contract with Loudcloud exceeds $1 million per year.

Wong estimated it would cost $200,000 per year for each technical worker he'd need, plus expenses for collocation, hardware, and software. And the estimate doesn't even include equity commitments the company would have to make to new staffers.

"When we first saw the quote, we choked on it," Wong said. "But that forced us into an ROI exercise where we analyzed what we were spending and what it would really cost us to do the infrastructure. We calculated that in one year we would have something like a 25 percent savings."

And besides, when an FBI call is the highlight of your first day in business, it's hard to put a price tag on peace of mind.