McCleary Talks About USi and the ASP Market

FRAMINGHAM (04/03/2000) - USinternetworking Inc. is a typical startup that offers employees imaginative perks such as sailboat lessons. Not quite so typical, however, is the application service provider's CEO, Chris McCleary. A straight shooter, his unassuming office occupies an interior space with no natural sunlight. In fact, conference rooms in the firm's Annapolis, Maryland, headquarters have better views. Network World Senior Editor Denise Pappalardo recently talked with the executive about why he believes USi has the upper hand in a rapidly expanding ASP market.

NW: USi has been criticized for investing millions to build its own data centers, even though this isn't considered to be an ASP's core competency. How do you respond?

McCleary: Some ASPs have said they're not building data centers because it requires too much capital. But at a recent financial industry event for ASPs, an analyst said that that's a ridiculous excuse because anyone can go out and sell a billion dollars worth of junk bonds. In a capital-constrained environment, we wouldn't have put in our own data centers. But we're living in a different model.

NW: But beyond the ability to raise capital, is it still a good idea for USi?

McCleary: When we first launched our plan we met with Exodus. I asked, 'Can we put our proprietary monitoring tools on servers hosted in your data centers?'

And they said, 'No, of course not.' When we look at the way we manage the network, it is so totally different than publicly administered data centers.

We're connected to 12 Internet backbones, including three international carriers. We also have two national and international frame relay and ATM host connections. And last quarter, 75 percent of our customers who signed up said they wouldn't have signed up unless we owned and tightly controlled the design and scale of our data centers.

NW: What type of reliability guarantee is USi offering?

McCleary: We're offering a 99.5 percent availability guarantee, and we go up from there based on product extensions. For instance, if a customer has local redundancy where we mirror servers and wide-area redundancy where we actually have a backup site in one of our other data centers, then that customer would get a higher guarantee.

NW: Are you talking up to 100 percent availability? Is that something that could be written into a contract?

McCleary: You could come close. That would probably be backed up by insurance because you can have a massive hurricane or tornado, or a hurricane and earthquake at the same time, so 100 percent is a little tough, but you could get close to it.

NW: Most vendors are trying to develop Web-based software clients, but many still offer fat clients that are accused of slowing down systems and simply not being as easy to use as a Web browser. Where do USi's application vendors stand?

McCleary: There probably needs to be segmentation. There's browser-enabled, and then there's Internet-enabled. We're running, very successfully, client/server applications over the Internet. So if a Siebel customer wants to set up dial-in access over the Internet, that's fine. We set them up with a USi virtual private network and a Siebel client. For PeopleSoft customers, we can run the application over the Internet and frame relay with no problem for the client.

NW: It sounds like you're saying there really aren't performance issues when running applications such as PeopleSoft or Siebel over the Internet compared with running them over private-line or frame relay networks.

McCleary: Well, keep in mind now, we're not Internet zealots here - we're communication zealots. Almost all our customers have private access and Internet access. So if the people at Sunburst Hospitality [a USi customer] were entering a payable on their accounting system, that's over frame relay. That's not over the Internet. But employees can go into the same application over the Internet to look at their 401 (k) balances. That has really played to the strength of USi.

NW: Are customers that are using financial or human resources applications more apt to use private line or frame relay?

McCleary: They don't specify that, we do. We put in whatever's best in our view, and right now, frame relay is more predicable. We can get guaranteed committed information rate [CIR].

On the Internet, eventually you'll be able to get CIR, but you can't right now.

NW: Is USi recommending frame relay when customers need fast access for heavy client/server applications?

McCleary: Or ATM. But some of them use IP over frame relay.

NW: Who are your competitors?

McCleary: Traditional buyers of hardware and software.

NW: Do you see any service providers as competitors?

McCleary: EDS, at the very high end. Ariba would be a competitor. IBM, we bump into them all the time on e-commerce, and PeopleSoft.

NW: What about Oracle Business Online?

McCleary: Oracle had everything there to be a good competitor. But their message has been inconsistent. They shut down their own data centers and are moving out of the Oracle campus. They're re-doing the whole thing.

NW: What about Qwest Cyber.Solutions?

McCleary: I think they will be. I think teaming [with KPMG] slowed them down.

NW: US West is one of the major shareholders of USi. Qwest, one of USi's competitors, is in the process of buying US West .How will that affect the company?

McCleary: We canceled our distribution agreement with US West for its 14-state region. We've taken the territory directly. They have committed to hold their shares in the Treasury Department and act just like the rest of the private equity investors. They're not in any hurry to dump the shares.

And we continue to have host connections into the US West frame relay network that serves the 14 states, and we'll continue to be a customer. And US West's PCS and Yellow Page business units are separate customers of USi.

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