GlobalCenter Deal Gives Exodus Boost

SANTA CLARA, CALIFORNIA (10/10/2000) - Web-hosting provider Exodus Communications Inc.'s announced acquisition of competitor GlobalCenter Inc. could boost Exodus' offerings in the managed services arena, according to industry experts.

GlobalCenter has a better reputation than Exodus for providing managed services, says Lydia Leong, an analyst with consultancy Dataquest.

"While only a very small percentage of GlobalCenter customers are fully managed, about 70 percent take some level of managed services," she says.

Late last month Exodus agreed to acquire GlobalCenter from parent company Global Crossing for Exodus stock worth approximately US$6.5 billion.

Exodus has some managed services capabilities, Leong notes, but the company is known more as a provider of collocation space. Most Exodus customers install their servers in an Exodus data center and handle the server management themselves, she says.

Leong says GlobalCenter's managed services capabilities aren't as complete as those of Digex, a network services company acquired by WorldCom in September as part of WorldCom's purchase of Intermedia Communications.

Earlier this year, Exodus had been talking to Digex about a potential deal, but nothing was worked out. Global Crossing and Exodus also tried to work out an agreement earlier this year that would have seen Exodus acquire GlobalCenter, but talks broke down.

Exodus still has a lot of work to do before it becomes a significant player in the managed services market, says Joanna Makris, an analyst with The Yankee Group in Boston.

"Exodus, by and large, is a collocation company trying to move to managed services, whereas some companies such as Digex have a larger managed services component," she says.

In addition to some managed services capabilities, the acquisition of GlobalCenter gives Exodus more data center space and guaranteed bandwidth at low prices to link its data centers.

The combined Exodus-GlobalCenter operation will have 32 Internet data centers worldwide and almost 4,000 customers.

Analysts say the network portion of the purchase agreement could be the most significant part of the deal for Exodus. Exodus now has access to guaranteed low-cost global bandwidth through GlobalCenter's parent Global Crossing.

"The acquisition of Digex by WorldCom points to the importance of access to networking resources in being a truly global provider," Makris says.

Part of Exodus' agreement with Global Crossing calls for Exodus to purchase more than half its global network capacity outside Asia from Global Crossing. In Asia, Exodus and Global Crossing will build a joint Web-hosting and managed services venture.

Prior to its agreement with Global Crossing, Exodus bought network capacity on short-term contracts from several suppliers.

"Having to go out and constantly get agreements adds to your cost structure," says Melanie Posey, an analyst with market research firm IDC in Framingham, Mass. "With Global Crossing, they're getting better pricing and guaranteed bandwidth."

Posey says the integration of Exodus and GlobalCenter should go fairly smoothly, and customers of both companies should experience no ill effects.

"If you look at GlobalCenter, it's more of the same for Exodus," she explains. "They're just adding scale and scope."

Dataquest's Leong also feels there will be little customer impact. Most high-end GlobalCenter clients have dedicated account personnel serving them, and those account people will be making the move to Exodus, she says.

Also, Leong notes, neither Exodus nor GlobalCenter is highly standardized on any particular server platform, so customers of both providers will likely be able to stick with the systems they're running on.

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More about DataquestDigexExodusGlobalCenterGlobal CrossingIDC AustraliaIntermediaIntermedia CommunicationsWorldComYankee Group

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