Cable & Wireless CEO Graham Wallace is bullish about the companys future in advanced managed hosting. He expects corporations will continue to use the Internet for more applications and will outsource management of the lions share of their Web-facing infrastructure.
Having moved all of its hosting assets under the umbrella of Digital Island, its newest subsidiary, Cable & Wireless now owns a unique combination of networking assets that includes the worlds second largest backbone and a large edge computing network that virtually links 330 networks.
Riding on top of this infrastructure is a software platform developed by Digital Island, initially for content distribution services rivaling those of Akamai Technologies. This platform now serves as the basis for more advanced, enterprise-focused services. Under the general brand of 2Way Services, it supports a variety of tools for enterprise customers to optimize the performance of mission-critical software applications over data networks.
Ruann Ernst, CEO and president of Digital Island, predicted that managed Web hosting would be a $20 billion to $28 billion market by 2005, of which 64 percent would be spent on managed services. Cable & Wireless is hoping to play a significant role in that market, through Digital Island.
"We wouldnt be predicting that sort of growth just on the basis of new applications going on the Web," Wallace said. "The argument for outsourcing managed hosting is pretty powerful, because bringing together the network, the infrastructure, the software [and the] content distribution is something that is terribly difficult for a company to do in-house."
A Giga Information Group study released in conjunction with the launch of 2Way Services found an average Global 500 company could save $892,000 per year by subscribing to Digital Islands outsourcing services instead of building similar infrastructure in-house. Ernst pointed out that more enterprise customers are interested in building in-company content delivery networks, a service Digital Island is developing jointly with Cisco Systems.
Wallace said that prior to the Digital Island acquisition, Cable & Wireless wished to have about 1 million square feet of data center space in order to be adequately equipped for the organic customer growth in North America, Western Europe and Asia, where most of its customers are concentrated. The combination of the two companies facilities has produced the required data center footprint.
While stressing that Cable & Wireless is prepared to get its due share of the managed hosting market through organic growth, Wallace said that investment bankers are talking to his company about future deals because of the number of "distressed" assets in the hosting and networking industry. He said the assets of bankrupt Exodus Communications were on his radar screen, and added that his main criteria for new assets are customers and sustainable revenue. He also said the Japanese assets of bankrupt PSINet are being studied.
While the vast majority of its customers are concentrated in highly developed economies, Cable & Wireless is also eyeing emerging markets. When fielding questions from reporters at a news conference, Wallace confirmed that the company is studying PSINets assets in Panama, and is expanding facilities in Moscow.
The demand for hosting in Russia was big enough for Cable & Wireless to build a second data center in that country after the first one became filled. Cable & Wireless also struck a deal with Moscow-based IBS, one of the largest system integration and offshore software development companies in the region, to launch an application service provider partnership dubbed Data Fort. Wallace predicted that more advanced services such as 2Way Services would be available in Moscow once customer demand for them is verified.
To Wallace, all these developments are further proof that the Internet, just like the telephone before it, is a service with longevity in the business world.
"There is a reasonable understanding why the Internet bubble burst," Wallace said. "There were companies without viable business plans, with stand-alone Web-based propositions and no compelling competitive advantage. But the big but is that the Internet is an incredibly powerful tool for improving business performance. It allows businesses to interact and transact directly and very effectively with their customers."