Enron Site Sold

"Headline risk" is nothing new in telecom. But some assets of scandal-plagued companies are faring better than others in bankruptcy sales. In recent weeks Enron has been unloading some of its remaining Enron Broadband Services data center assets and colo customers. This week Zipa LLC announced that it had purchased a former Enron data center in New Orleans, and its bound to be happy with the deal.

According to bankruptcy court documents, Zipa paid $250,000 to assume the lease to an 8,013 square foot facility on the 10th floor of 650 Poydras, which includes 6,600 square feet of finished data center space. Included in the sale are colo contracts for two customers, Infolink Communications and McLeod USA, as well as all the equipment installed in the space. All for about $31 a square foot.

Zipa is a web host and domain reseller (operating as Intercosmos Media Group) with existing operations on several floors at 650 Poydras. Zipa says it will invest in some upgrades, and "is seeking to make the facility one of the premier collocation and commercial hosting options in the South, while also building one of the largest private peering points in the region. Zipa foresees many opportunities in the high-end hosting industry in the years to come."

Internap: Prices Stabilizing

Network services provider Internap had good news on several fronts during yesterday's fourth quarter earnings call. In addition to detailing the company's financial progress, president and CEO Greg Peters offered an upbeat outlook on pricing. "We are seeing a significant stabilization on pricing," said Peters.

According to Peters, the trend in network services pricing is driven by the "stability premium" in a turbulent market. "There is evidence, albeit anecdotal, that prices have been stabilizing as customers consider quality of service and stability, and not just price," said Peters. "There was a tremendous flight to safety, which is eliminating the competitive behavior of some providers. There's less reason for these safe havens to continue to be so aggressive with pricing, to the point where some had priced services below their cost."

That trend, along with continuing cost management initiatives, helped Internap improve its direct margin from 41 to 44 percent, according to Peters, as the company recorded an EBITDA profit of $1.5 million in the fourth quarter, and a net loss of $14.5 million. The company has $25 million in cash, with a burn rate of $7.3 million for the quarter and anticipated cash outlay of $5.5 to $6.5 million for the first quarter of 2003. For the full year 2002, Internap's revenue was $132.5 million, with an EBITDA loss of $16.1 million and a net loss of $75.4 million.

Internap said it signed up 118 new customers in the quarter, bringing its total to 1,267. The company now has 340 employees, including 100 new hires in the Atlanta area, where Internap relocated its headquarters last fall. Peters said 41 workers relocated to Atlanta from Seattle, the company's original HQ site.

"This past year was an important turning point for Internap," said Peters. "This puts us in an excellent position to continue to grow our market share and revenues, at a time when competitors in our industry are faltering."

Suddenly, Customers

War with Iraq looms. Americans are fretting about the economy. There are signs that more companies are leasing hosting space. Huh? Those three thoughts wouldn't appear to flow together. But I'm noticing a definite uptick in announcements of customer wins in recent weeks.

The busiest provider has been Inflow. Since Jan. 20, the Denver-based managed hosting firm has signed three new hosting clients and purchased additional business from Interliant. New customers announced by Inflow include Thompson Machinery in Nashville, Barry Wehmiller in St. Louis, and Frontier Airlines in Denver, along with the aforementioned former Interliant customers in Atlanta.

That's not all. Digex has been busy as well, with a press release today about the signing of John Crane, coming on the heels of last Wednesday's announcement of HIT Entertainment and the Jan. 13 decision by Reader's Digest to expand the services it hosts with Digex.

Meanwhile, Savvis signed a contract last week to provide managed hosting to the Discovery Channel, Verio announced a hosting deal with The Quilt, Conxion inked a hosting pact with Vision Direct, and Infocrossing touted a $4 million contract win from a customer it refused to name.

Is this a verifiable trend or another false alarm? It's hard to know. Either more customers are being signed up, or providers are making more noise about their customer wins. Both scenarios would validate the reported gains in service provider confidence in recent months.

CyberWar or CyberHype?

As the US edges ever closer to military action against Iraq, there is once again chatter about "cyberattacks" targeting US military and government sites. A recent New York Times story describes a classified FBI assessment that a "recent rise in electronic attacks against government and military computer networks in the United States may be the work of pro-Iraqi hackers and could signal a 'potential crisis' in national security."

Juxtapose this with a story from last week documenting the American military flooding Iraqis with "Surrender Spam". In response, Iraq apparently shut down its Internet connections to the outside world to deflect the email barrage.

I found a couple of interesting comments in these stories that may provide some perspective. The NY Time account includes a quote from Tim Madden, a spokesman for the military's Joint Task Force-Computer Network Operations. "The fact is, we are attacked and we defend on a daily basis," Madden told the Times. "Less than 2 percent of those attacks are successful in that the intruders gained root-level access."

Ummm ... does that mean that nearly 2 percent of cracking attempts targeting .mil sites are able to get root access? Yikes! Let's hope that's a misprint or misquotation. If true, that would suggest that the bar is set pretty low for hostile cyber-mischief against the miitary.

But perhaps not from Iraq. The San Francisco Chronicle story relates that Iraq shut down "the country's two e-mail servers." Can a nation whose Internet infrastructure consists of two e-mail servers really pose a cyberthreat?

Uptime Champs

There's always interesting news in the monthly Web Server Survey from Netcraft, a UK-based performance monitoring firm. The January 2003 survey reveals that a site running on a Windows 2000 server has made Netcraft's list of sites with the longest continuous "uptime" without a server reboot. But that immediately got me wondering - which site owns the bragging rights for the longest uptime on the Internet?

According to Netcraft's Top 50 survey, the honor goes to the Yamagata Chamber of Commerce in Japan, hosted by Hopemoon Internet, which has gone 1,455 days (nearly four years) without a server reboot.

The top North American contender, at No. 10, is Berg.org, a simple personal site hosted by Minneapolis ISP Vector Internet Services, which has continuous uptime of 1,255 days. Vector also has a Quake server that has gone more than 1,000 days without a reboot. Another local hosting company with a server on the list is db Technology, which provides Internet services in Tuscaloosa, Alabama.

Larger US providers with servers boasting uninterrupted uptime of at least two years included Sprint, Exodus, Verio and Intac Access, as well as New Agora Corporation (which hosts the LightReading site and other technology publications).

Perhaps most interesting, however, was the presence of a number of organizations that appear to be running their serves in-house, including the City of Kobe (Japan), Tuscon Newspapers (parent of the Arizona Star), and the Merrimack County Telephone Company of Contoocook, NH.

What do these results tell us about uptime trends? Nothing conclusive, of course. But it documents that when it comes to uptime, small providers running Apache and BSD/FreeBSD can go toe-to-toe with industry heavyweights.

Interland Consolidates

Interland has been one of the major consolidators in the shared hosting/dedicated server space, scarfing up eight smaller providers since mid-2001. As it integrates the assets acquired in that buying binge, Interland is closing four data centers, the company said this week.

The locations targeted for closure include facilities in Kansas City, Seattle, Mesa (Ariz.) and Ft. Lauderdale, Fla. Interland estimates that it will generate EBITDA savings of $4.5 million, with one-time consolidation costs of $2.3 million, according to a press release outlining the closures.

The Kansas City closure has attracted the most attention, as it effectively shutters CommuniTech.NET, which had been Kansas City's largest local hosting company when its owners sold to Interland in February 2001. CommuniTech had won several local small business awards, and the closure of its former data center has played out as a David Vs. Goliath story.

CommuniTech co-founder Gabriel Murphy told the KC BiZ Journal that he now believes selling to Interland was a mistake. “I wish we would have done things differently and not gotten involved with Interland,” Murphy said.

It's Getting Lonely

The demise last week of HostingTech magazine was mourned by its many readers. It was the latest casualty in the consolidation of news outlets covering the hosting and data center industry, following the closure of Web Hosting magazine last year.

The hosting news magazines have experienced the same problem faced by many data center operators and service providers - a high cost structure that can't be supported by the revenue stream, at least at this point in the life of the industry.

HostingTech and Web Hosting mag were fine publications, and I'll miss them. Each had strong editorial content, and I read every issue cover to cover. But each time they published, they had to pay for the glossy paper, printing costs and mailing costs. But although these publications covered the Internet industry, they failed to take advantage of one of the Web's greatest business advantages - the ability to reduce costs through electronic delivery.

The primary remaining news outlets dedicated to daily coverage of the hosting/data center sector include Web Host Industry Review and our own publication, CarrierHotels.com. Both are web-based operations and don't have the overhead that stymied the print publications.

The future of news in this industry is online. Further evidence of this is offered by the recent sale of Boardwatch, one of the oldest and most established print publications. It was just bought by Light Reading, which will shut down the print version and move the entire operation online, with a March relaunch date.

A Profitable Sale

Cents on the dollar? Not for Ameritrade, which says it just sold its Kansas City data center to MasterCard for a handsome profit. The publicly-funded deal closed at a price of $23.5 million, which worked out to a $9.2 million gain for Ameritrade.

How did Ameritrade make money on a sale in an environment in which most data centers are selling for between 20 and 50 cents on the dollar (and lower, in some cases)? Comparing data center sales is often an apples vs. oranges game, since there are so many variables involved. But sometimes a buyer's needs and timetable and the location of a facility come together in a deal that defies conventional market wisdom and still makes fiscal sense for the purchaser.

We've mentioned this deal in this space before, because it is funded with public money. On Nov. 28 the Kansas City Council unanimously approved a $44 million bond offering to buy the site at 11530 N.W. Ambassador Drive near Kansas City International Airport for MasterCard's use.

The initial numbers reported on this deal seemed so high that I got in touch with the Economic Development Council of Kansas City, which helped correct some media reports on the square footage of the site (it's 100,000 square feet, not 60,000). That places the sale price at about $235 a square foot.

That's high, but not unprecedented. In the past year, there have been at least four sales of data centers in which the price has exceeded $200 a square foot. In each case, the deal involved a corporation buying a stand-alone site for its own use. These kind of prices are rare, but they exist. (NOTE: We'll have more information on our research on comparable sales in coming weeks).

What is unique about the Ameritrade sale is that it doesn't include the improvements. According to media reports, the city is paying about $14 million to acquire the equipment, and will spend several million more to retrofit the site for MasterCard - which is why the city approved bond funding well beyond the $23.5 million sale price.

Thus, even if Ameritrade's report of a $9.2 million profit doesn't include improvements (which seems a safe bet), they're covering those costs as well. Ameritrade will lease back 20 percent of the building from MasterCard for at least the next five years, which also contributes to the value of the deal for MasterCard.

Can it be a win-win-win transaction at these prices? Kansas City's economic development officials say it's a winner for them, since it keeps the site active, retains the Ameritrade jobs and brings in some new jobs as well. MasterCard gets the facility and advantageous terms from the bond funding. And Ameritrade made money on the sale - and you won't hear a data center seller complaining about that.

Beyond Server Huggers

"Server huggers" have been the bread and butter for many of the success stories in the colocation and managed hosting sector. These customers are typically small- to medium-sized local businesses who want to save money by outsourcing, but keep their equipment nearby for easy access. In recent weeks, succeeding with these local customers has led to wider benefits for several Southeastern providers.

Springboard Managed Hosting announced this week that it had signed up two new customers: TAG Aviation and Marketocracy. The catch? Both companies are based in California, yet will house their equipment in Springboard's data center in Cary, North Carolina. Springboard's traditional focus, as CEO Rich Lee told us last year, has been local customers in Research Triangle. That's evolving with the addition of TAG and Marketocracy, along with another significant out-of-state customer, New York-based Fortune City Network.

“As we play on a national scale, we are competing with the major telecoms and national hosting companies," said Springboard CEO Rich Lee. "We are finding that Springboard’s debt free position gives us a distinct competitive advantage over these well known, publicly held and heavily financed players with multiple, largely unprofitable data centers scattered across the country and abroad.”

Regional providers with low debt and strong service appear to be increasingly competitive in winning customers performing national searches. An example is NeuStar, the Washington, DC-based Lockheed spinoff which maintains databases for phone numbers and domain names. The company spent nearly a year evaluating 18 data center providers across the country before settling on the Charlotte, NC facility operated by Peak 10.

“By selecting Peak 10, we realized that we could dramatically reduce costs and at the same time, build more security and reliability into our operations,” said Michael Lach, NeuStar's chief operating officer.

Customer access to equipment has historically been a driving force in data center business plans. It's the reason the "chains" of the boom years built facilities in multiple markets, rather than constructing centralized sites and expecting customers to come to them - a strategy that may have worked for IBM, but not many others.

But times are changing, with both providers and customers focused on cost issues. For the right combination of cost, stability and service, more customers seem ready to relax their grip on their servers.