Analysts warn clients to brace for the worst.
The precipitous slide of Exodus Communications Inc. from the pinnacle of the Web hosting market continued last week when Ellen Hancock resigned as chairman and CEO after three rocky years with the company.
During Hancocks reign, which began in 1998, the Santa Clara, Calif., company went from being No. 1 in the market to seeing its debt grow to $3 billion, many of its customers leave, its stock slip to 65 cents per share and executive infighting over how to fix the problems.
The main problems leading to Hancocks resignation were Exodus data center build-out and its overreliance on dot-com customers, industry observers said. Hancock admitted to both this summer but said the company was turning itself around with new managed services. However, the managed services route was long ago chosen by Exodus once-tiny rivals, which today are aggres- sively courting Exodus customers.
Hancock was replaced by board member L. William Krause, a venture capitalist and one-time chairman of 3Com Corp. Analysts and users said the leadership switch was a predictable, necessary step since Krause has more experience running a large, non-dot-com company. Exodus officials would not comment on the change.
"I certainly have experienced some of the problems that theyve had of late, some difficulty in reaching people. I was tremendously happy, until of late," said Bill Graham, vice president of technology at ZoomCulture Inc., a video content specialist in Chapel Hill, N.C., and an Exodus customer since July 1999.
ZoomCultures contract for managed services runs until next summer, "but I dont know if theyll be a company in July 2002," Graham said.
Analysts have been warning Exodus customers to brace for the worst if the company does not receive funding or find a buyer. Many users say they are making contingency plans.
Recent history tells a different story from the optimistic one espoused by Hancock this summer. Ranked last year as the top hosting company by International Data Corp., of Framingham, Mass., Exodus has since been hobbled by two layoff rounds, class action shareholder lawsuits, $583 million in second-quarter losses, lowered financial ratings and data centers up for sale. Gartner Inc., of Stamford, Conn., warned customers late this summer to "be prepared to look for other providers" and to consider "life after Exodus."
Exodus problems will make any acquisition difficult, analysts said. Few companies would want to take on its debt and increasingly unhappy customer base, especially as telecommunications companies offer similar levels of high-availability server space at lower prices.
"It caps off whats been a really hard road for them over the past six months," said John Madden, an analyst with Summit Strategies Inc., in Boston. "It could be a tough sell, not only because of the economy, but because you have to consider what kind of value theyd bring to the table. Everyones been watching Exodus wither on the vine."
On attracting new enterprise customers at this point, Madden said, "In many peoples minds, theyre not even a player anymore. Its like theyve been thrown out of the ballpark."