From Cnet.com:
news.cnet.com
Loudcloud makes a push for new business
By John Borland
Staff Writer, CNET News.com
August 13, 2001, 5:45 a.m. PT
Loudcloud is once again tweaking its business model as it attempts to attract
large customers, but it's far from certain that the move will be a rainmaker.
On Monday, the Web infrastructure company released a new set of services that give
customers a kind of a la carte approach to Loudcloud's Web site management offerings, as
opposed to the previous one-size-fits-all approach.
As earlier reported, the switch is intended to appeal to the big corporations that have been
wary of handing over all their Net management requirements to a start-up company, but which
might want to sample some of Loudcloud's individual services.
In addition, the company is
pressing to prove its long-term
financial viability, following recent
pointed questions from analysts
about its finances. After some
painful staffing and budget cuts,
the company seems to have
settled those short-term
concerns, even if its long-term
prospects remain cloudy.
"I don't have concerns about
solvency," said Alex Arnold, a
financial analyst with brokerage
house Adams, Harkness & Hill.
"But I do think that in order to
make investors happy they'll have
to keep cutting costs."
The Net infrastructure services company, which was founded by Netscape Communications
founder Marc Andreessen and colleague Ben Horowitz two years ago next month, is struggling
to regain the momentum it inherited from its founders' pedigrees. After launching as one of the
most promising new companies in Silicon Valley, it ran headlong into market conditions that it
hadn't expected and that threaten to turn its original business model on its head.
Loudcloud has been one of the most prominent of a new generation of companies aimed at
providing a broad range of Net communications and software infrastructure services. Its basic
service offerings take a company's Web site completely under its wing, arranging for hosting,
monitoring its performance, and serving as consultants and technical support on servers and
software components such as databases.
Originally appealing to Internet-only companies, it has switched its focus to large corporations
as the Net sector has crumbled. The shift wasn't enough to erase Wall Street's concerns about
a business model built in sunnier days.
Loudcloud's initial public offering earlier this year was seen by some as possibly opening the
door to additional tech IPOs. But the sale was stormy from the start.
For one, the IPO was delayed because of an East Coast snowstorm. Later, the company was
forced to unfavorably revise the terms of its stock offer, by increasing the number of shares
offered and reducing the per-share price. The revisions reduced Loudcloud's proceeds to $150
million from an earlier estimate of about $180 million. Some analysts said the company forged
ahead with the IPO because it was desperate for cash.
When Loudcloud finally began trading, the shares rose just 3 percent the first day, giving the
company a market value of about $450 million, rather than the more than $1 billion valuation
executives had previously anticipated.
Loudcloud shares have slid steadily since the IPO. Shares in the company closed Friday at
$1.63 and have traded as high as $7 and as low as $1.28 in the past year. The company has a
market valuation of about $120 million.
To be sure, Loudcloud is not alone in its woes. Others in related Web hosting businesses, for
example, also have suffered. Exodus Communications and Digex, both of which compete with
Loudcloud in some ways by offering so-called managed hosting services, have seen their
stocks plunge or have recently laid off workers.
Since going public, Loudcloud has trimmed its staff, cut sharply back on some of its
infrastructure costs, and says it has more than enough cash to last through 2003, when it sees
its business beginning to break even.
In June, it posted a first-quarter net loss of $60.3 million, or $1.25 per share, on revenue of
$11.7 million, compared with a net loss of $14.6 million on revenue of $86,000 during the same
quarter last year. The company expects to report financial results for its second quarter, which
ended July 31, on Aug. 28.
"For us, in my opinion, we've seen the bottom of the downturn," said Horowitz, the company's
CEO. Loudcloud's least stable customers have mostly left, and larger businesses such as
Ford Motor and USA Today are deciding to spend again, making it easier for outsourcing
companies to predict the market, he said. "It's pretty clear that (our potential customers) know
what their budgets are now, and what they want to spend it on."
A chaotic market
For all the changes, the company still faces a difficult market, even if analysts say the new
flexibility in its product line is a step forward.
According to recent research by Forrester Research, about half of all large companies keep
their critical Internet operations in-house, as opposed to farming them out to a Web hosting
facility or managed service provider such as Loudcloud. Even more daunting are reports that 30
percent of companies that do use outside facilities are thinking about bringing them back
in-house, and that another 30 percent plan to switch their outside providers.
At the core of these statistics, said Forrester analyst Jeanne Schaaf, is widespread discontent
and confusion in the corporate world about the value of Internet infrastructure and services.
Moreover, in the explosion of hosting facilities, managed service providers, application service
providers and other various fill-in-the-blank providers, companies aren't clear who does what, or
why.
"There is a lot of confusion in the market," Schaaf said, noting that Loudcloud and its
competitors are subject to the skepticism resulting from this confusion. "A lot of people are
comparing apples and oranges."
Loudcloud is nevertheless making the right moves by breaking up its services into separate a
la carte menu items for these companies, Schaaf said. By allowing customers to keep their
Internet gear in-house, while still taking advantage of Loudcloud's security and
disaster-recovery features, they stand a good chance of enticing skeptical corporations to
sample just a piece of the outsourcing model at first.
While Loudcloud tweaks its own businesses, competitors are not standing still.
Last week, for example, Sprint's Web services division announced that it would use software
from start-up NOCPulse to allow expanded monitoring of a customer's site's performance and
infrastructure.
Although it does not replicate the entire technology built by Loudcloud, NOCPulse's software
allows the big telephone companies and other hosting operations to begin offering some of the
advanced management features that Andreessen and Horowitz have built for themselves.
In the course of its corporate research, Forrester says it found that big corporations are leery of
outsourcing advanced Net software functions to telephone companies. But because they are
large and stable--a critical measure in days of economic uncertainty--they could provide
growing competition for Loudcloud and other smaller companies.
"They need to be concerned about that," Schaaf said. The telecom companies "have deep
pockets, and they're going to be there at the end of the day." |
