Digital Island looks overseas for growth

Digital Island, which provides Web hosting and private networks to companies with a global presence, already has data centers in New York, Silicon Valley, Honolulu, and London. The Hong Kong data center is designed to provide data backup and disaster recovery, the company said.

The completion of the center comes on the heels of several key partnerships, along with improved quarterly earnings and a recent initial public offering. Like many Internet start-ups, Digital Island has yet to record a profit, recently announcing quarterly losses of almost $4 per share.

But the company, which recently signed Compaq and Intraware as partners, argues that by offering global network services to e-commerce companies, it is positioning itself to share in the future success of the nascent market.

"They've been gaining momentum over the last year," said George Peabody, an analyst with Aberdeen Group. "They're a small organization, but what they do, they do extremely well."

In essence, Digital Island provides networks to global companies which need to distribute applications, products, and content on a worldwide basis. The firm has recently refocused its efforts on "e-business" clients, including a key partnership with Compaq to provide network services to the PC company's NonStop clients. In addition to the Compaq partnership, Digital Island has recently announced alliances with companies like E*Trade and Intraware.

Focusing on firms with international operations is a smart move, analysts say. "Their major advantage is their international presence and international capability," Peabody said, explaining that the company manages bandwidth for customers in countries that often charge for access according to usage.

"Domestically, it's an all-you-can-eat world. When you cross the continents, the rules change. They've done a lot to make sure they can provide high performance Web serving on an international basis," he added.

Signing on companies like Compaq has also improved the firm's credibility, observers say, especially given Compaq's recent announcement of a comprehensive initiative to provide Internet-based services to businesses.

"Compaq has been a very important partner of ours from the beginning, and will continue to be," said Ruann Ernst, CEO of Digital Island. The alliance has brought about significant collateral benefits, added Tim Wilson, vice president of marketing for Digital Island, including access to Compaq's distribution channel, marketing resources, as well as research and development associated with the company's Tandem and Digital Equipment subsidiaries.

"It extends the business model for both companies," he said. "It gives us the chance to continually press the envelope."

Digital Island has signed on 81 customers thus far, but the small company faces formidable competition from such giants as MCI WorldCom's UUNet, Peabody said.

"There are big carriers who are trying to do similar things, like UUNet," he said. "What's fascinating is how quickly things change in this business--the long term obstacles are going to be in international carriers competing."

"At the top level, we've got to continue to deliver to customers, but also continue with the pace of partnerships in the marketing arena, like Compaq." Ernst said, pointing to recent guarantees by the company to customers, known as Service Level Agreements, or SLAs.

Digital Island's recent SLAs guarantee a level of secure transmission on the company's global networks, including a uptime guarantees with refunds of up to 50 percent "if we drop off the face of the earth," according to Mark Kulpepper, senior product manager.

"Most SLAs are fairly insubstantial--they require the customer to prove that the vendor didn't deliver what they promised. This basically puts the onus of proof on the customer rather than the vendor," he said. "You can hold us accountable for our delivery."

SLAs and customer service in general is an area where Digital Island can pull ahead of larger companies, Peabody said. "Their customer service and the expertise of their people is superior--they should be fine."