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Commentary: Get backup plans ready

Exodus' problems reflect the deep troubles affecting the Web-hosting industry, where the company still gets the lion's share of its revenue.

By Ted Chamberlin and Eric Paulak, Gartner Analysts

Exodus Communications' problems reflect the deep troubles affecting the Web-hosting industry, especially the co-location market, where Exodus still gets the lion's share of its revenue.

The company, like many of its competitors, had expanded far too rapidly and was not prepared for the dramatic reduction in the demand for basic co-location services. It has tried to move more into the full-service hosting market on its own and through the acquisition of Global Center, but Exodus' full-service revenue has largely stayed the same as a percentage of overall revenue.

In a briefing with Gartner analysts, new Exodus Chief Executive Bill Krause said that he was going to take steps to eliminate unprofitable areas in Exodus' business. We believe the No. 1 target area will be Exodus' network services, where it largely buys and resells services of other providers. Exodus is also very likely to close some of its 44 data centers around the world. By year-end 2002, Exodus will probably scale back the number of data centers it owns and operates by at least one-third.

In keeping with these actions, Exodus' customers should take the following steps:
• They should examine Exodus contracts for exit clauses and transition-assistance allowances.
• Networking customers should develop a backup plan that involves finding alternate vendors so they can switch to those vendors if and when Exodus eliminates or sells off these services.

See news story:
Exodus battles to keep customers
• Customers of Exodus co-location or infrastructure services should find out how much capacity is being used in the data center in which their services are housed. If this capacity is less than 25 percent--indicating a high probability that the center may be consolidated with others or closed--enterprises should form contingency plans involving other local or regional co-location providers to prevent having their site moved out of the region.
• All customers should prepare requests for proposals for any service that Exodus provides to be better able to switch away from Exodus within 30 days if the company's financial problems are not remedied through bankruptcy proceedings.

(For a related commentary on how the decline in the market for data hosting services offers a chance for better pricing, see Gartner.com.)

Entire contents, Copyright ? 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.