Closing of Web hosting firm Exodus not a total loss, users and analysts say

The pending sale of the assets of Exodus Communications Inc. in bankruptcy court isn't likely to be a disaster for the Web hosting company's customers, users and analysts said.

First, many customers with mission-critical needs already use more than one Web hosting company, to provide redundancy. Second, Cable & Wireless PLC, the company buying Exodus' assets, is letting customers and analysts breathe more easily because it's an established company that's expected to seamlessly take over Web hosting for Exodus customers without any gaps in service.

For Neoforma Inc., which builds online health care supply marketplaces for customers, the bankruptcy and pending demise of Exodus is a minor inconvenience.

Though Exodus' hosting services are critical to the San Jose-based company's business, Neoforma already uses a second hosting company for redundancy, so a natural disaster or even a bankruptcy can't shutter its customers' sites for any length of time.

"It insulates you from exactly the kind of situation that Exodus is in," said Steve Wigginton, the company's executive vice president of marketing, operations and development.

Under the ongoing bankruptcy, which is set to be finalized next month, 30 of Exodus' 44 hosting data centers will be sold to London-based C&W for about $575 million in cash (see story). C&W hopes to keep most of Exodus' approximately 3,500 Web hosting customers as it takes over the operations and expands into the market. Santa Clara, Calif.-based Exodus is one of the world's largest Web hosting companies.

But assuming the sale of the data centers to C&W is approved by the bankruptcy court, the Web sites of Exodus' customers apparently won't miss a click. Exodus will pay to migrate any customers whose Web hosting facilities are in the 14 data centers not being bought by C&W, according to a spokeswoman.

For at least one Exodus customer, those assurances weren't enough.

Dan Agronow, vice president of technology at, the Web site of Atlanta-based The Weather Channel Enterprises Inc., said Exodus' bankruptcy filing was only one of several factors in his company's decision to switch to WorldCom Inc. for its hosting just last week.

While satisfied with Exodus' service, he said had "concerns related to the ongoing Exodus support and financial stability," in addition to being able to save money by going with WorldCom. "Since we had those concerns, we started looking around," Agronow said. The final decision to switch was made before the Exodus bankruptcy was announced, he said.

Ironically, used C&W as a hosting firm before switching to Exodus in late 1999, Agronow said. That prior experience wasn't good, he said. "They seemed to have a lack of experience that impacted customers often. It was a challenge to work with them."

Tim Tuttle, chief technology officer at Bang Networks Inc., a network services and systems consultant for banks, said that as an Exodus customer, he's seen no degradation in service since the company's financial problems became publicized.

San Francisco-based Bang has been using Exodus as a secondary hosting provider for about a year for redundancy. The bankruptcy and sale of the data centers to C&W won't necessarily mean any changes in that relationship, said Tuttle, who is pleased with the pending buyout by C&W.

"We're relieved and our customers are relieved that they're taking over," Tuttle said.

Analysts said they're hearing similar comments from their clients.

Adam Braunstein of the Robert Frances Group Inc. in Westport, Conn., said former Exodus customers will be "relatively lucky" to end up with C&W because he expects that the firm will find a successful strategy in a tough market over the next several years. "At least Exodus customers have a clear migration path," he said.

The demise of Exodus comes as no surprise, Braunstein said, since the company tried to grow too quickly with the idea that profits wouldn't matter until later. "Their business model was never really one of obtaining profitability," he said.

Ted Chamberlin, an analyst at Gartner Inc. in Stamford, Conn., said Exodus customers are apparently still satisfied with the service they have been receiving from the company since the bankruptcy proceedings began. For some customers, it was a gamble to stay with the company as long as they did to see what would happen, he said. "I think with C&W stepping in, their gamble paid off," Chamberlin said.

What customers should monitor closely, he said, is how C&W performs in integrating the different companies it has been acquiring, including Exodus and San Francisco-based co-location provider Digital Island Inc. "Enterprises should look at C&W's overall strategy and make sure it fits into their plans," he said.

Melanie Posey, an analyst at IDC in Framingham, Mass., said that for many Exodus customers, staying with the company throughout the recent uncertainty has been an unavoidable step because of the difficulty and expense of moving their Web hosting to another company.

"That's one thing that's working in Exodus' favor," Posey said. "It's just kind of hard for [customers] to leave."

The switch to C&W should be seamless for Exodus customers, she said. "There's no real reason that customers should care one way or another as long as it's an established company" that's doing their hosting, she said. C&W "knows how the business works," Posey said.

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Copyright © 2001 IDG Communications, Inc.

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