The practice of contracting out for e-mail service has grown popular at business-to-business carriers, while getting largely ignored by consumer-centric operations. The latest market developments might change that balance of power, though.
Early players such as Critical Path initially aimed outsourced e-mail at Internet service providers running large e-mail operations. Consumer ISPs generally argued that they didn't want to give up a core part of their business.
"We talked to Critical Path a few times, and they're not even close to the scale that we are - so we're concerned about that," says an executive at one of the nation's top five consumer ISPs. "But the bigger issue is that we consider e-mail as core to our business, so we don't think it would be advisable to put this essential a service in someone else's hands. We're large enough that we get great economies of scale. We don't think they could match our price or cost structure, our performance, our reliability, etc. So how could they possibly save us money?"
That's a fine position to take with just one caveat: The business of outsourced e-mail has changed a great deal since the day David Hayden and Wayne Correa came up with a business plan for Critical Path in a coffee house in the heart of Silicon Valley in 1997.
"Sixty percent of end users of our customers buy at least two kinds of communication services," says David Thatcher, president of Critical Path. "The first of these two services would be e-mail, although we could conceivably go in with a directory service and then add another messaging service."
Critical Path "is not about the e-mail anymore," says a short company description on its home page. In fact, Critical Path's marketing wizards resent reporters calling it an "outsourced e-mail" provider, insisting on a wonderful amorphous term: "all-sourcer." The point is that the company these days outsources everything - calendaring, fax-over-Internet Protocol (IP), unified messaging and wireless communications. And its customers increasingly go with Critical Path for reasons that outstrip the common need to save money on managing e-mail.
"We picked Critical Path because our views of e-mail as an element of the whole communications landscape are very similar," says David Noon, vice president of product management at Allied Riser Communications, a building-centric services provider aiming at small and midsized businesses. "We will soon need to have other applications available, like voice-mail and IP telephony services, and be able to offer integrated voice and video services."
While ARC is an obvious business-to-business operation, the company is taking advantage of services that are becoming increasingly popular at consumer-oriented operations as well.
"If you look at your own e-mail box from a year ago and look at it now, I think it has changed in the complexity of the messages that are coming to you," Thatcher says, adding that Critical Path sells to free ISPs and portals. "Customers in Europe like fax services and short message services. This is becoming a critical consumer tool."
The ramp-up of communications and other services by the likes of Critical Path leaves large consumer ISPs with the disadvantage of having to design and build their own service bundles, a task that is becoming increasingly complex due to the exploding variety of types of communications. What could be a plug-in to a Critical Path platform becomes an integration nightmare as ISP engineers have to come up with technical solutions of merging, say, e-mail and wireless messaging.
Leading providers of e-mail platforms such as Software.com, recently acquired by Phone.com, are moving in the same direction, having launched a unified messaging offering with Hewlett-Packard and Cisco Systems in June and having made the platform compatible with the latest wireless standards in May. But any way you slice it, building a platform like this is harder than getting it turnkey. And small ISPs that crave sophistication and don't have development muscle are caving in.
"Speed to market with a full suite of applications for small ISPs is critical: They don't have the time or the money to build it themselves, or buy all the hardware and the software and get up to speed," Thatcher says.
Of course, the payoff for gaining all these new features and competing with the likes of America Online, EarthLink, Juno Online Services and Prodigy Communications with cooler communications gizmos is entrusting a player such as Critical Path with what could be the most vulnerable piece of ISP business.
When things go wrong with this setup, people begin paying attention to which company handles their communications. When Critical Path had a snafu with one of its e-mail nodes last fall, many corporations and small ISPs outsourcing with Critical Path started hearing from their customers about not being able to send and receive e-mail - and were unable to give their customers a plausible answer as to what was wrong and when the problem would be fixed.
However, the incident was the only high-profile outage in Critical Path's three-year history.