Loudcloud and The Future

Marc Andreessen has seen Internet trends come and go. Yesterday he succinctly summarized the state of the hosting and managed services business. "When we started Loudcloud, we said we wanted to be the EDS of the Internet," said Andreessen. "Now EDS is the EDS of the Internet." If Loudcloud represents the "smart money" in the managed hosting space, what does its decision say about the future for hosting companies without three-letter names?

Andreessen, the chairman of Loudcloud, said the company's decision to sell to EDS was driven by a "change in the fundamental dynamic" of the web outsourcing business. "IT has become a game for very large companies," said Andreessen. "This is absolutely indicative of the way the industry is going."

Ever since the dot-com market imploded in 2000, Loudcloud and similar providers have been an industry in search of a working business model. As the hosting and colocation business dried up, analysts pointed to managed services as the new revenue engine, prompting many colocation providers shift gears and chase deep-pocketed corporate customers. Still others retooled to emphasize disaster recovery services.

The relentless nature of the telecom meltdown and the slowdown in corporate IT spending have conspired to delay the windfall. With little funding in sight and the break-even point receding further into the future, even a marquee name like Loudcloud reached the point where it had trouble forecasting its financial future.

Meanwhile, the lion's share of the action has been going to EDS and IBM Global Services. Scanning a landscape of struggling "New Economy" hosting providers, skittish enterprise customers are defaulting to the name-brand stability of the huge known quantities.

Can the managed services model be profitable for the remaining players? It had always seemed that time would be the salve for the industry's wounded. The Internet isn't going away; the market will eventually recover, and the survivors will benefit. Right?

With the clock ticking, the meter running and no recovery in sight, time is proving to be an ally to the giants, not the would-be giant slayers. EDS is the EDS of the Internet after all.