The greater responsibility that managed service providers take on - and charge top dollar for - backfires tenfold on those customers that have to live through an MSP default.
The highest-profile collapse has been Xuma, named by its flamboyant CEO Joe Cha for an ancient Chinese war cry that means "charging horse." The company launched four years ago from Chas apartment in San Franciscos trendy South of Market district and quickly gathered $48 million from high-profile investors such as Broadview Capital Partners, Dell Computer, ING Capital and Menlo Ventures.
But in June, Xuma sacked 125 employees and closed its doors, leaving customers such as Arcade Planet, Cannon Computer Systems, CornerHardware.com, FringeGolf, Maxim, More.com and NextMonet in the lurch.
For some, an alliance with Xuma translated into untold lost opportunities.
Xuma built a gaming site for Arcade Planet that did not scale and had to be redone, which delayed its launch. "We were four to five months late because of Xuma. And who knows, maybe we could have gotten in on the IPO window before it and venture money shut down," says Bryan Kelly, Arcade Planets vice president of engineering. "They grabbed too many projects, tried to make too many things happen all at once, and they hurt other companies because of that."
But before Xuma wreaked havoc with its own customers instead of its competitors, the company seemed to develop just like any other MSP.
Cha started Xuma in 1997 after stints at Anderson Consulting and PricewaterhouseCoopers. His chief technology officer and co-founder was fellow Anderson consultant Jamie Lerner. At the core of the business was monitoring and provisioning software, akin to the packages that most MSPs have, by now, either purchased or developed themselves.
Neither Cha nor Lerner, nor any Xuma board member contacted for this story would agree to an interview.
Xumas first big alliance was a provisioning deal with PricewaterhouseCoopers. Marquee customers Pacific Gas and Electric and Cannon Computer Systems soon followed. But like Arcade Planet, few seemed to stay for long.
Technology Not to Blame
It was not the technology that killed Xuma - it was its management.
"Delivery dates slipped because they were always shifting staff around," Arcade Planets Kelly says. The very shortage of qualified IT people that companies such as Xuma was supposed to relieve for its customers was eating the startup alive.
The gee-whiz software at the core didnt help much in curbing the body count, since standardizing on any kind of automation software would have limited the company to customers willing to abandon their existing systems in favor of something developed by Xuma.
By the time management realized the full ramifications of the situation, a competitor with tight control over costs and enough management star power to draw customers had popped up - Marc Andreessens Loudcloud.
Xumas Cha went on a media crusade, trying to poke holes in Loudclouds story of innovation and noting that the competitors name is "a white porous mass making loud noises."
But customers werent buying the rap.
Xumas programmers were top-notch and its tools excellent, but Kelly says it was tough to work with the MSP to dynamically update Arcade Planets site. Add to that the trouble of getting into the cage whenever Arcade Planet wanted to make a gear change and Xumas never-ending programmer turnover; within six months, the gaming site was bringing monitoring and maintenance in house.
The customers spinning through the revolving door finally caught the attention of investors. Cha left the company early this year. But by then, Xumas attempt to grab a significant share of the managed services market was pretty much botched. As Loudcloud was adding customers such as Ford Motor, Xuma was shuttered, leaving behind more than 50 customers with no transition plan and no further guidance.