Loudcloud's ambitions run into hosting partners' plans

The company, which offers Web hosting and Web site monitoring services, has been on an expansion tear since it was founded late last year. Its newest strategies, to be announced next week, will move the company into a nascent applications service provider (ASP) market that analysts say could be worth more than $25 billion in just a few years.

That new thrust adds to Loudcloud's stable of services, which already go well beyond what most traditional Web hosting and telecommunications giants offer.

But as the company has moved into new service areas, its relationships with some hosting and infrastructure companies it depends on for its services have soured. These companies, too, are trying to expand their business portfolios, and some say Loudcloud has been stepping too far into their territory.

"When somebody crosses the line and starts coming at you straight down the gun barrel, you just can't work with them anymore," said one senior hosting industry executive.

Web hosting companies Exodus and GlobalCenter have closed their doors to Loudcloud's future business for the time being, loath to assist a company they now see as a competitor, hosting industry sources said. This dispute in particular predates the start-up's new strategies.

Loudcloud said it has plenty of data center space under contract from these suppliers already and maintains good relationships with both. But it said it is in negotiations with each company about just how the companies can work together as they offer increasingly similar sets of services.

Exodus' and GlobalCenter's "business model has evolved since (the original contracts), and that's OK," said Ben Horowitz, Loudcloud's chief executive. "They may be concerned, but we're working through that."

Clashing visions
Loudcloud's basic business provides a suite of Web services that give a company all the infrastructure and hosting facilities it needs to create a sophisticated Web site. The start-up provides around-the-clock monitoring services that ensure clients' pages can download quickly and provides guaranteed backup services that will mirror or quickly restore Web sites if a particular data center goes offline, a site is attacked by hackers, or some other unforeseen crisis strikes.

Already, a few big customers, such as Nike, Britannica.com and Work.com, have signed up for the service. But at the same time, a host of other companies ranging from CrossGain to NOCPulse and MimEcom are establishing themselves as competitors in individual segments of Loudcloud's business.

Though Loudcloud provides the computer server machines that host its clients' sites, it doesn't own any data centers or physical networks. The company leases those services from outside telecommunications and hosting companies such as Exodus and GlobalCenter, while it focuses on the software infrastructure that underlies Web operations.

But companies such as Exodus and GlobalCenter also are eager to expand their revenue streams by adding consulting and software services to their hosting and equipment offerings. Many large Web hosting companies are considering or already offer high-end databases for online catalogs and back-end e-commerce payment systems, freeing their customers from that task.

Andreessen and Horowitz say the Net business needs to specialize even more along these lines. They don't plan to go into the physical hosting business, they say, and it doesn't make sense for hosting companies or telecommunications companies to delve as deeply into the network software business as they have.

"It's a fluke right now that the physical center housing data has anything to do with the software running inside it," Andreessen said. "The complexity (in the business) is moving much too fast."

It appears to be precisely that theory that is angering some of the more traditional companies, which increasingly see themselves competing in the same arena of online "managed services."

In the interim, Loudcloud has turned to alternative hosting centers with less of a stake in the consulting business, such as AT&T and Equinix. Analysts say the clash between Loudcloud and the major Web hosting companies shouldn't set the company back for long, as considerable new data-center capacity is being built worldwide.

Next week's announcement
The bumps in the road haven't slowed Loudcloud's expansion plans.

Next week it will announce two new ventures. One will expand its existing suite of services overseas, allowing companies to distribute traffic and hosting internationally more easily. The other, more ambitious tack is to bring the company into the ASP business.

Analysts say this is precisely what is needed to bring the broad range of software companies into the Internet age. But it won't necessarily take Loudcloud to do it.

"The idea that you can be a software development company and a hosting company at the same time should dissolve quickly," said Joshua Greenbaum, an industry analyst who heads Enterprise Applications Consulting in Berkeley, Calif. "But I'm not sure that Loudcloud has anything to distinguish it from the pure-play ASPs already in the market."

Andreessen and Horowitz say Loudcloud has a few distinctions. The company's service is all about reliability, and the promise of reliability is one thing that is critical for the ASP market to soar, they say. Moreover, they paint the ability for ASPs to sell to Loudcloud's other customers as a critical benefit.

"Any customer of ours is someone who has already bought into the idea of outsourcing," Andreessen said. Outsourcing means that a company hires another company to handle parts of its business, such as Web site maintenance. "That makes them a great prospect for our ASPs."

The new Loudcloud services will be phased in during the next few months. Over time, tensions will ease as the various companies and competitors settle more comfortably into their respective niches, Andreessen and Horowitz said. This is inevitable, as the niches for hosting, services and network management become more complicated, they contend.

"It's all going to keep getting more complex," Andreessen said.