Managed Expectations

Some hosting companies are focused on core business

Through all the noise surrounding the frantic flight of some data center owners into managed hosting services, you can barely hear the voices of others who say adding such services is just icing on a cake baked of solid bandwidth and colocation sales.

Globix, a provider of hosting services, recently opened two new data centers — one in New York, and the other in downtown London. Company executives say the foundation for the growth is a business plan that is, well, boring. Globix makes about 75 percent of its money selling bandwidth off the network that it owns and manages for quality, and from the sale of data center space.

"Part of the Globix strategy is that we didnt overbuild. Weve built the right amount when we needed it, in the right cities, based on the market trends we were seeing," says Alfred Binford, Globixs president of sales and marketing. Explaining why the New York company slowed the building of data centers in 2000, Binford says it was part of a plan to get ahead of those market trends, which prompted the company to begin to switch from servicing dot-coms to servicing enterprise customers as early as last fall.

In some locations Globixs data centers are at about 90 percent capacity, so full that the company is assumed to have lost some business to competitors.

"They were smart and stupid at the same time," says Andrew Schroepfer, president of Tier 1 Research. "When companies like Exodus [Communications], Metromedia Fiber Network and every other data center were building, Globix went out and built out their data centers, filled them out and then didnt build any more. They have lost about six months worth of momentum because they couldnt sell."

Maybe. But Globix executives arent sweating it.

"Our competitors have overbuilt, and they have data centers in multiples by now and they dont know what to do with them. We are not in that situation," Binford says.

The plan now is to build data centers in large cities where there is certain demand for basic meat-and-potatoes hosting services. By doing this, Globix cant fail, Schroepfer says, because if hosting doesnt sell in cities such as New York and London, the hosting market is dead. Managed ser-vices, a business that can be both complex and human capital-intensive, can be layered on top of hosting, gradually accounting for more revenue, Globix managers say. Globix plans to reach profitability in 2003, based on the sale of its core hosting services — managed networks and data center space. Added services such as streaming could enhance the companys bottom line, but are not viewed as business-model saviors.

Such a strategy is in line with the expectations of financial analysts who are tracking hosting, including Cary Robinson, a Piper Jaffray senior research analyst. Robinson has said, time and again, that the managed services business is not an opportunity that affects this years, or even next years, projected revenue of large colocation companies making a turnaround play — such as Exodus — and attempting to emerge with a managed hosting business model.