The Monkey Wrench Gang-Infrastructure Utility Provider

Infrastructure utility provider, a relatively new industry service providers who provide utility over a base of phisical infrastructure is becoming a popular solution for starting and maintaining bussiness on-line.
Written by Deborah Gage, Contributor and  Ben Elgin, Contributor

When Omar Ahmad emerged on a sunny June day last year from the Menlo Park, Calif., offices of venture-capital firm Kleiner Perkins Caufield & Byers, he made it all the way to his car before losing it. There, Ahmad's legs gave out and he sprawled on the parking lot pavement, all the while a smile beaming on his face.

The former Webmaster for Netscape's Netcenter portal, Ahmad had just pitched his one-month-old company, Logic Tier, to the most venerable VC outfit in techdom. It wasn't supposed to be an easy sell: LogicTier preaches outsourcing like religion, promising to deploy and manage Internet infrastructure for its customers—a rather ethereal topic for mid- 1999. But before he could plow through his final bullet points, Kleiner partner Kevin Compton abruptly interrupted. "I can have a check for you within 15 minutes," Ahmad recalls him saying.

Ahmad deposited $3.6 million of Kleiner funding into Logic Tier's bank account and promptly moved the budding company from his living room to some fresh office space. "I just couldn't believe it had been so easy," recalls Ahmad.

If only he knew. One year later, the market for infrastructure utility providers like LogicTier is exploding—making Kleiner's initial $3.6 million investment look like mere milk money. Indeed, a pack of well-funded start-ups—from Marc Andreessen's Loudcloud to iXL spin-off AppGenesys #151;are scrambling to tame the Internet, making it safe for corporations that are pushing much more of their business online. Taking aim at everything from site outages to security breaches, these infrastructure utility fledglings bridge the much-neglected void that sits between the data centers and the Web integrators.

"Companies like Loudcloud and LogicTier are going to fundamentally change the way corporations use the Internet," predicts Rick Juarez, senior research analyst at Robertson Stephens.

Venture capitalists certainly are buying the story, too, pumping more than $300 million into these infrastructure plays in the past two months alone. Meanwhile, a steady influx of high-profile execs have joined the fray, with former UUNet chief Mark Spagnolo taking the corner office at SiteSmith in July, and ex-EDS bigwig Darl Davidson grabbing the helm at MimEcom in June.

But big names and deep pockets don't guarantee success for next-generation Internet solutions. Just ask Pandesic—the doomed e-commerce application service provider from SAP and Intel that closed up shop last month. Very few observers question the overflowing demand for infrastructure-on-demand offerings, but if today's emerging pack of Internet plumbers are going to remain fixtures in the industry, they'll have to wade through lots of patchwork piping.

Grab A Wrench Unlike ASPs, infrastructure utility providers—or IUPs (pardon yet another acronym)—provide everything from prebuilt technology stacks for rapid deployment to 24 x 7 Web site maintenance and operations. The business model is similar in many ways to traditional power or phone companies: IUPs provide a suite of technologies and services above a core physical infrastructure on a pay-as-you-go basis.

The value proposition is simple: Customers can focus on core competencies while outsourcing their Web operations to these infrastructure start-ups. Customers also are shielded from the high-tech recruiting nightmares required to build a competent Internet ops staff.

More importantly, these infrastructure start-ups are taking aim at a bigger nemesis: The patchwork Web infrastructures that have led to a spate of much-publicized site outages and security breaches. "People are starting to understand that the Web, for the most part, doesn't work. There's a lot of chewing gum and duct tape holding everything together .... That's what's driving this [emerging sector]," says Jerry Colonna, managing director at Flatiron Partners, an investor in infrastructure upstart AppGenesys.

Industry analysts describe the emergence of IUPs as the latest step in the natural evolution of Internet infrastructure, with stage one consisting of simple brochureware Web sites and stage two boasting more sophisticated Web site and application hosting.

Stage three is quickly morphing into full-service infrastructure operations, fueled by Silicon Valley horror stories of badly architected Web sites, insecure data centers, and ISPs riddled with servers that are kept running because no one is sure exactly what they do.

For AppGenesys founder and CTO Benjamin Chen, the need for such an offering has been glaringly obvious for at least 18 months. As a high-ranking exec at Web integrator iXL in the late '90s, Chen helped dozens of corporate customers and dot-com start-ups develop an Internet presence. But each time his staff handed over a solution to be hosted at a data center, Chen held his breath.

After all, he says, the data center pros or the customer's IT staff often would have little idea how a project worked. If something happened, iXL may be called in only after it's too late. "I went from chief technology officer to risk mitigation officer," says Chen, who formulated the idea for AppGenesys in late '99.

Chen, like other new-breed infrastructure players, is trying to fill the gaping void that exists between the data centers that house the servers and the Web integrators that build the projects. "They come from two entirely different cultures ... Throwing the application over the fence after it's made just doesn't work," he says.

The Missing Link? Ideally, Chen & Co. will powwow with a systems integrator early in the development cycle—pushing the proj ect toward one of its 12 to 15 prebuilt infrastructure stacks. Once completed, AppGenesys can test its scalability before taking the application live at one of its data center partners. "You've got to understand the last mile of the systems integration business and the first mile of the data center business," explains Chen.

That arrangement works just fine for many Web integrators. After all, the biggest profit margins come earlier in the project, when the business processes are hashed out, the applications conceived and the coding performed. The last mile, hooking various pieces together and testing for performance, often can drag on and bog down profits.

Despite public shows of support from many Web integrators, however, the number of joint projects between the two camps remains somewhat sparse. Lante, for example, trumpeted a partnership with Loudcloud two months ago but can point to only one potential joint customer that is still in the bid process. Nevertheless, the Web integrator remains gung ho. "Looking forward, the majority of our customers will be built around an infrastructure provider like Loudcloud," says Lante CTO Marv Richardson.

MimEcom, which was spun out of San Francisco e-integrator Fort Point Partners, says 11 of its 14 customers have been referred by Web integrators. Its biggest catch, K-Mart's e-commerce site Bluelight.com, is a Fort Point customer, as well.

As visibility of this sector builds, most likely so will partnerships between Web integrators and infrastructure providers. But inherent tension also could bubble to the surface.

Indeed, infrastructure utility players from Loudcloud to AppGenesys to LogicTier to SiteSmith all express a need to own the customer—and they're a natural fit to handle the day-to-day relationship. After all, they will be the ones picking up the phone when a customer needs more bandwidth, or if the site goes down. Web integrators, nonetheless, have been equally emphatic about owning their customer relationships.

"It's a 'sell-with' scenario," says MimEcom founder and CTO Michael Carrier. "We share the client, but [MimEcom] takes ultimate accountability [for the site]."

That's a gutsy stance that could be tested if the going gets rough and a site takes a dive. At that point, how much blame will the infrastructure provider shoulder—especially if they're not certain they are the culprit? In reality, Web integrators likely will have to concede the general contractor reins to the infrastructure utility provider for such a relationship to succeed.

"It's still an evolving discussion," insists Loudcloud CEO Ben Horowitz, who has had many such chats with partners like Scient, Viant and data center powerhouse Exodus Communications.

Built To Last? But before IUPs take a seat at the Internet solutions table, one pressing question must be answered: Are they here to stay?

Many analysts are quite taken with the business model. For starters, customers pay these infrastructure upstarts a sizable monthly fee to launch and manage their infrastructure—often between $100,000 and $250,000, depending upon the size and scope of the contract. But unlike systems integration projects that usually expire after 12 to 18 months, these customers could keep pumping revenues into IUPs for years on end.

"Our model is strictly recurring monthly revenues ... which is much better than a one-time fee," says Mary Ann Byrnes, CEO of LogicTier. "As long as we do our job, there's no reason our customers will go anywhere else."

More With Less Another upside: Although every IUP is hiring at a breakneck pace, these companies are less reliant than Web integrators on recruiting to grow their businesses. A big reason behind that is infrastructure automation. Loudcloud, for instance, is attempting to automate the process of scaling a Web presence through its Opsware technology, which it claims can provision and configure a blank Web server into a customer site in less than 15 minutes.

The end result: Fewer people are required to handle more customers. "Highly engineered solutions [like Loudcloud's] lets the technology drive growth rather than people. That is extremely attractive in today's labor market," sa

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