CRN Interview: Ellen Hancock, Exodus Communications

Exodus Communications Chairman and CEO Ellen Hancock spoke with CRN Associate Editor Jennifer Hagendorf Follett about the company's financial health, growth plan and partnership strategy.

CRN: What is your vision for Exodus?

'We're focused on getting on profitability, and we're focused on growing our customer base...'

We are seeing a change where the lead emphasis is going from business-to-consumer to business-to-business--and now even business-to-employees. More and more customers are understanding the economics of outsourcing and realize they will have a more reliable site if they work with an outsourcer. And they will be spending less money on that Web site if they use an outsourcer.

CRN: You mentioned becoming more of a partner to customers. What has to happen for Exodus to do that?

HANCOCK: We're doing it already. We have quite a few customers where we are providing application hosting, managed Web hosting and storage-on-demand, for example. I already mentioned our security offerings. We also do a lot of consulting with customers. We have between 700 and 800 consultants working with these customers, so we are already providing a fair amount of partnership activity with the customers themselves.

CRN: How do you think the Exodus of a year from now will differ from the Exodus of today?

HANCOCK: What we're seeing more and more is that there is a blending between the Exodus' data centers and the customers' data centers. They are appearing as a complement to the customers. So we are seeing dark fiber--we have partnerships with Telseon and Yipes for dark fiber to the customers' data centers--and we have consultants working in their data centers and out of our data centers. At any one time, we probably have between 100 and 200 customers we're working with that are not yet hosting customers but are using our expertise and our consulting services. We also have customers who are using our technology for certification and testing. So more and more, we're providing a range of services to people interested in outsourcing technology to us.

CRN: What is Exodus' partner strategy going forward?

HANCOCK: Right now, about 50 percent of our business comes through our partners. So our strategy is to continue to work with those partners. We have a channel program that's fairly effective. We work with companies like Sun [Microsystems], Compaq, Microsoft, Accenture and EMC. As it relates to the managed hosting, our partners are Cisco, Compaq, Sun and Microsoft. So we already do have fairly extensive partnering activity.

CRN: Does that also include systems integrators and VARs?

HANCOCK: It does include some, yes.

CRN: How will systems integrators and VARs play in Exodus' future?

HANCOCK: Well, I would say that many times it's the integrators and VARs from the vendors themselves--the ones we've already mentioned. So sometimes it will be their VARs that will deal with us. But I've already mentioned what I think are the lead systems partners that we deal with.

CRN: What about smaller or midsize VARs and integrators?

HANCOCK: We work with smaller companies. For example, we work with SiteLite, a managed service provider (MSP), and SevenSpace, another MSP. If a systems integrator has a particular niche market and the customer wants us to work with them, we're very capable of doing that. We have some companies that have a security expertise. For example, we announced that we're working with Counterpane. We work with Ejasent, and we've announced that relationship.

CRN: So what kinds of managed services can we expect to see from Exodus in the next six to 12 months?

HANCOCK: Well, I'll give you the general areas that we focus on. We're focused on providing storage on demand, with StorageNetworks being our lead partner; tape backup, with SanRise as the lead partner; and content distribution, working with Mirror Image. We also work with Nokia and [Cisco] PIX for the base of a firewall offering, for which we've added our own intellectual property. We provided customers with a new portal called My Exodus, and we continue to enhance that portal so they can come in find out about their account. They're going to be able to find out about their invoices and more information. They can find out about their bandwidth reports. You'll see us doing a lot of work in the professional-services arena. We're building up special practices.

CRN: What types of professional-services practices are you building?

HANCOCK: They have expertise in storage and data, for example, and in security. [We're] probably the leading [service provider] security company. They have experience in moving the customer from their data center to our data center, and they have experience in building Web sites and configuring the database, servers and routers. We work with a lot of technology vendors, such as CacheFlow and Inktomi, to build up practices in the infrastructure space.

CRN: Are there specific service areas that Exodus plans to add?

HANCOCK: I think we cover most of the areas at the moment. We cover managed application hosting, managed Web hosting and all of the other services. So I'd say we have a fairly wide range. It would be more about adding particular initiatives within those areas.

CRN: What do these additional services bring to Exodus' solution provider partners?

HANCOCK: It gives them more services to integrate. It gives them a richer offering. It brings us up in the value stack, which is more important to them.

CRN: Will Exodus remain primarily focused on large enterprise customers or will it include more midsize and small companies?

HANCOCK: It's primarily large enterprises.

CRN: Recently, there has been a lot of talk about Exodus' financial situation. What do you tell customers and partners who question the company's ability to survive?

HANCOCK: We say that we're healthy, we say that we have sufficient cash, and we say that we brought in $200 million of new business in the first quarter and $200 million in the second quarter. We increased our customer base, and we're bringing in very good, large customers. We indicated that we'd be cash-[earnings per share]-positive next year. That's what was said on [our second-quarter] earnings call.

CRN: Some folks on Wall Street seem to think Exodus will be declaring bankruptcy within the next six months. How do you respond to that?

HANCOCK: You'll have to talk to the people on Wall Street. They were the same ones who were wrong about data center space.

CRN: Wrong in what way?

HANCOCK: Oh, they assumed there was a glut in data center space. And after they assumed there was a glut, we opened four new data centers. We've announced that we will open another data center this half, probably in Washington, D.C., and that we'll probably have to open another one in Santa Clara, [Calif.], this half because we need more space.

CRN: What percentage of Exodus' facilities are now being used?

HANCOCK: I'd say it's about half. Some of them are full, of course. If you have nine data centers in Santa Clara, you can assume most of them are full. We also have opened some very large data centers. So you really have to look at the data-center-by-data-center split.

CRN: How have you been spending your time lately?

HANCOCK: As we mentioned on the earnings call, we are looking to see if we can get additional funding. So you can assume I'm spending time on that. I'm also spending some time with our employees and customers in different cities. I spent some time with customers, for example, in New York and Seattle last week, and I'm going to LA this week. So I'm trying to go out and talk to customers and employees. I also spent a fair amount of time with our business partners.

CRN: What types of questions are these customers asking when you meet with them?

HANCOCK: In some cases, they want to talk about new data centers and how much space we can give them. Some of them ask about the [company's] finances, and I do what I just said. But many of these customers are looking at expanding their business with us.

CRN: Does Exodus plan to sell some of its data center equipment to raise cash?

HANCOCK: If by selling it you mean leasing it, that's a possibility.

CRN: Do you think Exodus is undervalued right now?

HANCOCK: Well, the stock was overvalued at one point--when everybody was overvalued--and I think most of us are probably undervalued right now.

CRN: Why do you think a lot of the financial analysts are picking on Exodus so much?

HANCOCK: I have to say they're not [only] picking on Exodus. They've been picking on quite a few companies recently. They certainly have been hard on the telco space, on the hosting space, on some of the infrastructure space and on many of our business partners, like the MSPs.

CRN: What is the next plateau that Exodus needs to reach?

HANCOCK: I think that plateau is profitability. That's the thing that we're all focused on. We're focused on being the right size, we're focused on getting to profitability, and we're focused on growing our customer base--and, essentially, on addressing the enterprise market.

CRN: And you expect Exodus to be profitable within about a year?

HANCOCK: That's right.

CRN: Does Exodus have enough money to last until then, or does it need to get more funding to continue operating over that time period?

HANCOCK: We have enough money.

CRN: Are you happy with the amount of data center space Exodus has right now?

HANCOCK: Yes, I am. We added a fair amount of data center space as you know when we acquired Global Center in January.

CRN: What message are you trying to send to customers?

HANCOCK: The message is that we have a solid business, [and] we probably have the best service in the industry. We believe we have the best network in the industry. We're a managed hosting company, we're an outsourcing company and we think we'd be a good partner.

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