Exodus nabs hosting deal with Covisint

Executives from both companies tell CNET News.com that Exodus will run all of the auto exchange's Web operations globally, including facilities, security, storage and network services, in three data centers in Chicago and Amsterdam in what they believe will save the auto exchange millions of dollars.

Covisint picked Exodus over Web hosting giants UUNet and Digex because of the global presence of the Web hosting company's data centers, accommodating business plan and professional services, said Dino Colaluca, director of global operations at Covisint.

"Exodus showed us they were flexible and were willing to be creative to do things differently," he said. Covisint looked at the others, "but chose Exodus because of their flexibility."

The exchange is expected to be a central marketplace for parts auctions and project collaboration among as many as 40,000 companies doing business with the automobile industry, from paper clip manufacturers to multinational chemical conglomerates. Covisint executives say that when fully operational, the exchange will handle up to $750 billion in annual purchasing. But the exchange, which recently hired a chief executive after an 18-month search, has been slow to get rolling due to technological complexity, administrative bickering and a souring market for B2B exchanges.

The deal couldn't have come at a better time for Exodus, which has been hit hard, like its competitors, by a sluggish Internet sector and a downturn in the economy. On Wednesday the company said it was cutting 15 percent of its work force, or 675 employees.

"Not only is this a big deal right now, the B2B sector is going to be a major growth area for Web hosting in the future," said Wagner Rios, an analyst with AMR Research. "For them to spearhead in this space with Covisint is a great move."

Although Covisint is the largest online exchange on the block, the company started with a technology operations staff of just a handful of workers, which led executives to choose outsourcing the development and day-to-day management of the company's Web operations.

"This deal is helpful for us," said Bruce Telley, vice president of marketing at Exodus. "This is right in our model of managing hosted systems for large enterprise customers" so they can concentrate their IT efforts in other areas.

Exodus has been hosting Covisint's American Web operations since September, and the disaster recovery came online the first of this year, Colaluca said. It will begin hosting European operations in mid-June.

"Basically, when we started the exchange last year my total staff was me and two other people," Colaluca said. "We decided to host out our operations because we needed to rapidly deploy the exchange with a global reach, rather than me building the system. The fixed cost for building our own data center would have been very high. I had no staff, so their professional services augmented my operations team."

Exodus joins a host of technology, consulting service providers and auto manufacturing companies that make up the team behind Covisint, which initially was launched in February 1999 by automakers Ford, General Motors and DaimlerChrysler, and technology companies Oracle and Commerce One. It is intended to help save millions of dollars in administrative costs by using the Internet to automate purchasing of supplies and raw materials.

By March 2000, even before the exchange had an official name, the FTC began questioning whether the venture would lead to antitrust violations. Industry analysts and at least one member of Congress debated whether the FTC should meddle in the venture, which critics said could result in price collusion among the world's leading automakers and a withering of profit margins at smaller suppliers.

But the federal government cleared Covisint in September 2000 after a six-month investigation, as did the Bundeskartellamt, Germany's antitrust regulatory agency. Led by its new chief executive, Kevin English, Covisint has its eye set on going public sometime in 2001 or later in 2002, depending on market conditions.

Analysts said the Exodus decision makes good financial sense.

"The deal protects their cash flow," AMR Research analyst Kevin Prouty said. "It helps them invest in things they need by freeing up cash to build up what they really need rather than try to doing things internally. While they lose some control, it makes sense for them to host out to someone else."

But the addition of another technology company to the mix may upset some old-line suppliers that already have difficulties adopting the technology needed to get on board, Prouty said.

"There might be some supplier concerns about having to use applications managed by a third party because it will appear to be another layer between suppliers and manufacturers."