June 17, 2002 -- Loudcloud will exit the web hosting and managed services business, selling those business lines to EDS as it recasts itself as a software company with a new name, Opsware.
Today's announcement by Loudcloud raises fresh questions about the ability of "New Economy" service providers to compete in the IT outsourcing arena against larger players such as EDS and IBM Global Services.
Loudcloud had been one of the marquee names and most resilient performers in the battered managed hosting sector. Its chairman is browser pioneer Marc Andreessen, one of the Internet boom's most visible personalities as an executive at Netscape and America Online.
With the acquisition of Loudcloud's hosting business, EDS gains 50 enterprise web hosting clients. Loudcloud's hosting operations, currently housed at Qwest and Equinix, will be migrated to EDS data centers once the deal is closed in September.
As part of the deal, the venerable IT consulting firm will become Opsware's biggest client, licensing its web management software for its hosting and managed services.
Loudcloud shares rallied on the news in early trading, gaining 49 cents to trade at $2.12, a single session gain of nearly 30 percent.
EDS will pay $63.5 million for Loudcloud's hosting business, and pay $52 million a year to license the Opsware software. EDS said it believes it can realize as much as $100 million in savings by implementing Opsware.
"We think these tools give us advantages in automating many of the things we're doing manually today," said Jeff Kelly, president of EDS' global hosting unit.
"This agreement reinforces our leadership position in web hosting and managed services," Kelly added. "They have a great client list, and we are really excited about that."
"We think this is a huge win for our managed services customers," said Andreessen. "They will get to enjoy the power of Opsware and the stability of EDS."
Kelly said EDS would assume leases for some hardware being used by Loudcloud, but was unlikely to continue using Qwest and Equinix to host former Loudcloud clients.
"We'll be talking to all the partners Loudcloud used," said Kelly. "My guess is we will probably move out of those facilities."
That means yet another headache for Qwest, which lured Loudcloud away from Exodus last year, when Qwest looked like it could provide stability and a comfort level for Loudcloud's customers.
"Obviously, the market has changed a lot," said Andreessen. "Loudcloud has changed a lot, and Qwest has changed a lot, even this morning," he added, referring to today's announcement that Joe Nacchio had resigned as Qwest's CEO.
EDS, with its management consulting subsidiary, A.T. Kearney, serves the world's leading companies and governments in 60 countries, and had revenues of $21.5 billion in 2001.
Loudcloud can now be accessed on the web at Opsware.