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Commentary: Big opportunities, big challenges for Loudcloud

The future of management service provider Loudcloud depends on how well a very talented team meets some very big challenges.

By Ted Chamberlin, Gartner Analyst

The future of management service provider Loudcloud depends on how well a very talented team meets some very big challenges.

Loudcloud has a management team that is solidly grounded in the ways of the Internet, and it has created strong brand awareness in a market dominated by Web hosting giants, such as Exodus Communications. Loudcloud has developed internal software tools and processes that are on the cutting edge.

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Andreessen's Loudcloud in IPO high-wire act

Its business model of not constructing or owning costly assets such as data centers will likely endure if the growth of the managed service market falls substantially. Loudcloud should also benefit from the strategic partnerships into which it has entered.

That said, however, Loudcloud does face stiff challenges. For one, consider what the company does and is referred to--it is called a managed service provider, an Internet infrastructure provider and a software infrastructure provider. Because Loudcloud cannot be pigeonholed, that creates confusion among enterprises.

Moreover, Loudcloud's late entry into the managed service market will force it to compete against more established companies such as IBM and Digex, which have longer track records of serving a wide array of customers, including the more stable brick-and-mortar companies.

Finally, as is the case for start-ups in the Web services market generally, the economic climate allows little room for mistakes in business plans or operational execution. Loudcloud appears to have funding sources, but it likely must show some revenue gains before additional venture capital will flow in.

Loudcloud must do a number of things to help ensure success:

• It must execute nearly flawlessly in a managed service and hosting market that is becoming more competitive.

• It must continue its smart plan of internal process automation and scaling up operations with IT resources and not necessarily people.

• It must focus its sales and marketing on traditional brick-and-mortar enterprises so that it can vary its customer base.

• It must manage its channel relationships judiciously and create more opportunity via partnerships.

• It must grow its business and customers in a responsible manner.

That latter point is the bottom line for Loudcloud. If it does so, Gartner believes the outlook for the company is quite bright.

(For related commentary on finding an IT service provider, see registration required.)

Entire contents, Copyright ? 2001 Gartner Group, 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.