Management made much of becoming an ASP in last's quarter's call, but it's not quite so easy. ASP has become something of a new buzz word lately, replacing e-commerce and others from 6-12 months ago. Remember how everyone was an e-commerce play, and when pushed e-commerce won't have a significant impact to revenues and earnings (if any) for years, not quarters? Remember Fedex as an e-commerce play?
That said, Exodus will have to first land significant partners in the applications space with partners such as Siebel, SAP, Oracle, etc. for the apps. ASPs (by the true definition) are for corporate functions, not performance-monitoring software (what EXDS offers now). Secondly, they must get ENTERPRISES (not Yahoo, etc.) to buy into the EXDS story. That means going up against the big providers, QWST, IBM, AT&T, etc. who provide not just Web hosting but other communications services bundled under a single billing system. Enterprises value network reliability, availability, enhancements, security above all else (including price) with bundling. Trusted relationships are key if a provider is to move to outsourced applications such as HR/benefits/payroll, sales force integration, private networks such as VPNs, etc. Two strikes against EXDS entering this space anytime soon, 1.) EXDS enterprise customer list is short (I define enterprises as companies who derive the majority of revenues outside of the Internet, who use the Internet to augment revenues/cost savings. Still waiting to see an enterprise customer list from EXDS management.), and 2.) they don't own their network, just the data centers. Peering/tranasit doesn't count, as only the facilities-based players have the capabilities to respond quickly to network outages (which occur more than you think). Peers must rely on partners to fix the network, slowing uptime. Facilites-based providers have a leg-up over those who are not by providing the kind of network performance, security, etc. that corporations value above all else.
ASPs of the future will likely find the small- to medium-sized business market the most lucrative in the near term, as those businesses are the most likely to outsource more of their organizations/functions before large Fortune 1000 types. The large corporations have the money and staffing to handle IT functions internally. It may be some time before they truly move much into the outsourced Internet world. EXDS may be attempting to enter a market where the competitive providers have had trusted relationships (a key element for enterprises) for years, and will likely not see the kind of win rates from RFPs that they have in the past. And the competition is heating up daily. We will probably not hear much from EXDS management about this.
Finally, ARPUs will probably drop should the company pursue this opportunity in the near term. I am not sure that investors will like this much, as it has done nothing but increase. Selling into the sweet spot of the ASP market wouldn't carry the kinds of top line that EXDS is used to (although better margins) over the next few years. Maybe down the line, but not yet.
In conclusion, I am having a difficult time making the transition for EXDS into the ASP space anytime soon. But this management team is great at marketing, so they will probably be pushing this over the next few quarters. Or at least giving lip service to it. Stay tuned. |
