March 14, 2002 -- Corporate outsourcing of Internet operations looms as the largest potential business driver for data center service providers. That much the experts agree about.
But it won't happen overnight, and large customers have the leverage and patience to control the process, according to presenters at IMN's Forum on Carrier Hotels and Internet Data Centers last week in New York.
Panelists were also split about how rapidly outsourcing will evolve, and what it will look like.
"The fundamental question is whether the enterprise users are willing to outsource their operations," said Ham Southworth, senior director of real estate at EXDS, the former Exodus Communications. "My experience is that there's a certain hesitancy. People are interested in controlling their space and controlling their destiny."
"I think it will happen a lot more slowly than some people think," said JP Rosato, chief executive officer of CS Technology, a New York-based consulting firm that designs IT facilities for Fortune 500 clients.
"The sales cycle, from an enterprise standpoint, is much longer," said Rosato. "They're going to negotiate very hard for every dollar. They can take the time. They don't have the speed to market issues, and will be very careful where they spend their money."
Perhaps most importantly, large customers are discerning when selecting who they'll trust with their mission-critical technology.
"They are very leery about doing a long-term deal with someone who they don't think will be around," said Rosato.
That "flight to safety" has been a boom for IBM Global Services, which booked more than $1.7 billion in new hosting business in the first three quarters of 2001, and recently signed a seven-year, $4 billion deal to outsource the Internet operations of American Express.
At the IMN show, IBM's Bob Hinckley articulated the company's vision for "utility computing," envisioning a future in which packaged information technology services will be metered and delivered to customers much like electricity, gas and water.
"One of the things that will drive demand will be the migration of IT services to this type of utility model," said Hinckley. "Only recently have we had the solid, industrial-strength base technology that will make this work. It is the enterprise customers that we believe will validate this model."
The "commoditization" of basic colocation services - and the resulting pressure on pricing - has presented a major challenge to Internet hosting companies. Many providers have looked to managed services as the solution, citing the higher profit margins available in selling advanced hosting services.
In touting a utility model, IBM seems to be projecting a future in which managed services can be commoditized - at least by IBM, which may possess the financial heft and operational scope to deliver such packaged services to customers.
At least one large competitor is treading more cautiously.
"I don't think I see the market focused as fast on utility computing," said Mark McKenna, the general manager of solutions at Hewlett Packard. "We really believe in (the future of utility computing) at HP.
"But to me, we're still in the black and white days of TV," McKenna added. "I think there's a lot of maturity we're yet to see in this market. The ASP industry is a step toward utility computing. It will eventually get to the point where you will connect and have IT delivered. The utility model is a megatrend.
"Will utility computing get us out of this recession? No. Will utility computing be a major trend 10 years from now? Absolutely."