October 1, 2001 -- While much of the colocation industry is seeking to "move up the value chain," one prominent managed hosting initiative is heading in the other direction.
Just a month after abandoning its managed services focus and cutting more than 80 percent of its staff, Denver-based Relera Inc. is rebuilding itself as a more modest basic colocation company offering power and connectivity.
"We're providing space and power, and have bandwidth available," said John Pitek, Relera's vice president of sales and marketing, who said the company is "seeing a lot of interest" in the scaled-down offering.
Virtually all of the company's 50 managed services customers have moved to other providers. "There may be only a couple of those 50 customers left," said Pitek.
It may be too early to say whether the reversals at Relera offer a cautionary tale about the challenges of managed hosting, or whether its setbacks were due to overspending or a gamble on second-tier markets - or a combination of all of these.
But Pitek says the focus on managed services didn't turn out as Relera had hoped or expected.
"Every analyst report we saw was saying 'managed services, that's where the margins are' while predicting that floor space and bandwidth would become commoditized," said Pitek. "I think initially we fell for that.
"But it created an operating expense structure that was very high," he added. "We took on too much debt up front to have those managed services costs."
Relera launched in early 2000 with more than $300 million in venture capital backing and an ambitious plan to build 25 data centers offering managed hosting in second-tier markets.
In the first six months of 2001, while the telecom facilities market was retrenching, Relera opened 11 new data centers. On August 29, the company announced it would discontinue selling managed services and focus on marketing finished space to corporate customers in chunks of 2,000 square feet or more.
Pitek is optimistic that the changes in strategy and cost structure will be better for Relera's bottom line, particularly as it targets enterprise customers.
"I've worked with large customers for years, and they like to put a toe in the water," said Pitek, a veteran of Global Crossing and Qwest. "They have investments in infrastructure already, and they're very interested in maintaining control. With time, once you build trust in the relationship, they're open to more services.
"We still plan to bring those managed services back into the offering mix," he added. "I think that'll come with time."
Relera is pursuing its rebuilding strategy as a much larger managed hosting player, Exodus Communications, just filed for bankruptcy.
"It's pretty amazing that they're in bankruptcy and we're still here," said Pitek.
"We're not out of the woods yet," he added. "We do need more funding, and are talking with our investors about an additional round of funding to take us through the next couple years. At this point, a small amount of cash going in will preserve all the data centers, and give us a chance to survive."