15.398 Entrepreneurs in the Next Economy

Howard AndersonClass One

What we will accomplish

• 1. Demystify the Internet• 2. Understand the Business Models• 3. Use Critical Judgment of what will/will

not succeed in the future

Today: February 7th

6:00 – 6:20 H. Anderson/T.Dagres6:20 – 7:00 Ellen Hancock/Exodus7:00 – 7:30 Student Interview7:30 – 8:00 Ellen Hancock asks8:00 – 8:30 Case: FairMarket

Ellen HancockHoward Anderson

Hosting

• Subset of Outsourcing• Fortune 500:• Applications Center, Development

Center, Data Center• 1988: Kodak Effect:

– 8 of 10 Fortune 500 companies Outsource– (Xerox, Continental Bank, AT&T, etc.)

1998: Hosting Becomes Its Own Subset

• 1. Fortune 500 begin to build “shadow businesses” next to real businesses

• 2. Need for specialized set of services• 3. New Economy firms had no installed

base of technology – and a need for “best practices”

• 4. Exodus emerges as industry leader.

Hosting is…

• High priced real estate• Data Center• Communications Center

• Management Perspective: This requires a new approach.

Attackers, Defenders, Arms Merchants, Customers

• 1. Dot Com’s were the first market.• Amateur Night. Needed Help

Everywhere. Hosting, Managed Services, Handholding.

• 2. Fortune 500 Companies: ignored the problem(Denial), got agitated ( Anger), tried to respond(Grudging Acceptance), then capitulated (Giddiness).

Fortune 500:Became Counter Attackers

• 1. Adopt some of the tools of the Attackers ( Hosting).

• 2. Exodus becomes an Arms Merchant• 3. Fortune 500 changes its strategic

alliances:• Was: IBM• Became: Sun, EMC, Cisco, Oracle.

Business Evolves: 1998 - 2001

• Was: Electricity, LAN Connections• Became: Security and consulting

– Tape backup– Fire walling– Professional services– Caching– NT support– Unix Support

Danger:Commodization

• Base Business:Easy to Replicate.• Lots of Excess Data Centers with raised floors.• Solution: Build a Layer of Enhanced Services:

International; Communications.Security• Potential Competition: EDS, Big Six, EDS,

Scient/Viant/Cambridge Technology/Sapient/Diamond Technology/Andersen/EMC/Storability

Important: Deciding What Not to do.

• Not an E commerce Company• Not a Data Base Company• Not an Aps Company• Everyone’s Second Best Friend:• Sun/Compaq/Microsoft

OK. Questions:• 1. Explain the Exodus Business Model.• (Isn’t it a real estate deal with a very high up front

cost?)

• 2. What exactly are you selling besides rack space and bandwidth?

• 3. How many hosting centers do you have today? How long does it take to make one profitable? How many do you plan to build and how many are you fully funded for?

More Q’s.

• 4. How will you compete with Akamai?What is the Mirror Image Relationship? Will Mirror Image go against Akamai and its Reseller Strategy?

• 5. Some say that the hosting market and data center business is overbuilt. If so, how will you be able to increase prices?

Q’s.

• 6. What do you really mean by Managed Services? Do you really consider “cable Management” a managed service?

• 7. What will the next generation of hosting companies look like? Loudcloud? Those who will offer truly managed applications with guaranteed uptime and meaningful SLA’s?

More and more…

• 8. What is the average revenue per customer? What percentage of that is space/bandwidth vs. services? Trend?

• 9. Many of the largest e commerce web sites live at your hosting facilities: what are you doing about security and Denial of Services attacks which recently hit Microsoft?

Questions for Miss Ellie…

• 10. Given Moore’s Law, allowing you to continually gain a greater and greater amount of processing power into a seven foot rack…who do you keep the hosting centers with 99.999 of power and cooling? How has the California energy crisis hurt your business? Caused you to reevaluate your roll out strategy?

Q’s.

• Global Center:

Global Center..

• 11. With the hosting space rapidly consolidating, you pulled the trigger on the deal. Why? To get customers and foot print? Any other strategic value?

• 12. One of your largest expenses is bandwidth: Do/did you consider owning your own nationwide network? Or do you think that being a “buyer” will give you increasingly lower costs?

Global…

• 13. Can’t Hosting + Network threaten you?Example: Digex + Worldcom?

• 14. What about Content Delivery? You own 15% of Mirror Image; you decided not to resell Akamai like all the other hosting providers. Why?

Q’s.

• How has the dot.com slowdown affected you? Is there a real slowdown in Fortune 500 spending?

• Storage: In the past few weeks you sold your in-house storage capability and made a deal with both Sun and Storage Networks. Why?

Final Question:

• 15. Streaming seems like a natural service for Exodus… which could drive collocation and bandwidth. Aren’t distributed network providers like iBeam and Akamai better positioned to offer streaming?