A Path to Follow: Digex

The stampede first to build data centers and then to provide so-called "managed services" will continue in earnest this year, as large players like AT&T, Level 3 Communications, Qwest Communications International and Sprint crowd into the busi

The stampede first to build data centers and then to provide so-called "managed services" will continue in earnest this year, as large players like AT&T, Level 3 Communications, Qwest Communications International and Sprint crowd into the business model formerly known as Web hosting, and now called anything from application hosting to e-business provisioning.

"There is a bit of a Tower of Babel problem in our industry," says Peter Herzig, president and chief operating officer of New York-based Web hoster Globix. "A lot of people are using the same terms with totally different intent."

This year, Herzig hopes to educate Globix clients about what some of the terms in the Web hosting vocabulary really mean. But to Web hosters themselves, the phrase "managed services" seems to translate directly into "high revenue."

As various owners of data centers rush to offer managed services, their intent is clear. Selling real estate and bandwidth in data centers is not as profitable as it was two years ago and so they must extract more revenue from the facilities they already own. Not all of them, however, understand the art and science and are keeping close tabs on market leader Digex.

Founded in 1991, this Internet access provider-turned-managed hoster has, for a large portion of the industry, defined what managed services should look like. The value of the managed hosting business that Digex has built was quantified in WorldComs strategic, $3 billion acquisition of its parent, Intermedia Communications.

Carriers are eager to take a peek under Digexs hood, repeat its engineering and add similar value to their businesses.

Digex occupies several buildings in an industrial park in suburban Washington, D.C., near NASA headquarters. All but one of its data centers are unmarked, all are protected by three walls, bioscanners that know the difference between a human hand and a tree limb and a security firm staffed by off-duty Secret Service officers.

Its hard to believe this is the same firm that began as an Internet service provider in the basement of founder Doug Humphreys Greenbelt, Md., townhouse, where all of the equipment used by what was then known as Digital Express cost less than one of the UNIX servers Digex now operates. Founded as a company that would provide dial-up Internet access to students graduating from local colleges, Digital Express pulled off quite a coup when it outgrew Humphreys basement and moved above a local Chinese restaurant.

One of Humphreys favorite stories of those early days was hiring a young-looking Internet engineer who insisted on keeping a very specific, three-day-per-week schedule. When pressed, the engineer confessed that he didnt have a drivers license and had to carpool to his job at Digital Express with his mom.

That little firm laid the foundation of the managed hosting approach that has made Digex worth billions.

Digex entered the hosting business in 1995, the same year it began focusing on business services. The strategy was formalized in 1996 when Christopher McCleary, then company president (he went on to found USinternetworking), teased Web hosting into a separate unit.

"Its remarkable that from day one we have decided not to do shared hosting, and went with an all-managed, all-dedicated approach," says Charles Boyle, a longtime Digex employee and director of research and development.

Digexs business history from that point on is well-documented. The world is now trying to understand what makes Digex tick.

Steve Keifer, director of product management, offers a clue: "We have a couple of platforms that we support and on top of them we layer smart services," he says.

Supporting a platform — Compaq for Windows and Sun Solaris for Unix — is Digex-speak meaning running a number of server rooms where no customer and only "red card" Digex personnel are allowed in for hardware maintenance. All other management is done remotely.

"Any customer then gets these five services, which are the heart of managed services offerings: security, testing, customer care (project management and digital networking), reporting and storage," Keifer says.

It doesnt sound like rocket science, but it is. Digex established a combination of automation tools and best-practices training to automate provisioning and execution of those services. This enables the company to build a custom-designed server in 10 days, or monitor all of its customers servers with a shift of eight specialists instead of 80, as was required just a year ago.

In short, Digex has figured out which services most high-paying customers want and has built solutions to these problems that can be mass-provisioned quickly and cheaply.

Top brass at Digex dedicated most of 2000 to overcoming scalability issues with some of its largest customers, a barrier it expects many of its competitors to tackle only this year. One of the most pressing issues was monitoring — Digex worked hard to ensure all five of its facilities are monitored from one place with one crew, so any problems can be dealt with in moments. Most other hosters monitor each data center individually.

Much of 2001 will be spent developing managed services based on storage-on-demand, and on addressing short-term server capacity needs of customers by providing servers on demand — a feat of automation for the company. For example, Digex will keep a number of servers online in case a customer anticipating increased demand wants to ensure its Web site performance by doubling the size of its server farm for a few hours.

"We have managed services down to a science," Keifer says.