NETWORK WORLD NEWSLETTER: JEB BOLDING
on APPLICATION SERVICE PROVIDERS
10/17/01 - Today's focus: Relera pulls out of MSP market

Dear Wincenty Kaminski,

In this issue:

* Another managed service provider exits market
* Links related to ASPs
* Featured reader resource

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Today's focus: Relera pulls out of MSP market

By Jeb Bolding

It didn't make headline news in the Wall Street Journal, but
about a month ago, Relera, a hosted service provider in the
second-tier marketplaces, said it was getting out of the
managed services business and laid off about 83% of its
workforce. No doubt, the company is headed the same direction
as Exodus.

I know Relera, which now plans to offer customers space in its
data centers, is joining an esteemed group of failed Internet
businesses in the class of 2000-2001, but I felt this one
particularly hard. Part of the reason is that Relera is located
here in Denver, so the company is more part of my landscape
than the firms in Silicon Valley, where I left a few years
back.

Relera's collapse as a managed service provider is tough
because I'd spent some time visiting the company and got to
know several of the people working there. I toured its brand,
spanking 50,000 sq. ft. data center located just south of
Denver. I'd been to the data centers of Exodus and Level 3, but
the Relera facility was absolutely incredible. It boasted two
substations, state-of-the-art security mantraps, the whole
works - but it was also empty. No, strike that, it had one 6x6
cage filled with hardware.

Another reason, and the most important one that makes Relera's
failure seem so heavy to me, is that I actually bought into its
business model. Relera's argument was that it was not going to
go after dot-coms, which were dropping like flies at the same
time Relera was opening its data centers. Nor was it going to
target the top-tier cities in the world like London, Paris, New
York, and San Jose, where they are saturated by the likes of
Exodus, Level 3 and Abovenet. Instead, it was going to focus on
selling facilities space to enterprises that were interested in
developing e-business systems or collocating their internal
infrastructure. Relera was targeting these enterprises in
second tier cities such as Memphis, St. Louis, Denver, and Salt
Lake City.

It all seemed like a pretty good idea. In fact, it still seems
like a good business plan, even with the excess capacity that
the failure of some service providers, such as Exodus, and the
disappearance of startups that were potential customers, are
causing. Most of that excess is in the top-tier cities while
the second and third tier cities are still strapped for local
data center space.

However, one thing I didn't know, though I should have guessed,
was how much money Relera had spent on opening up these state-
of-the-art collocation facilities. I suspect that the tens of
millions of dollars Relera spent upfront, and the subsequent
operational costs, killed it before it really had a chance to
test its business model and target market.

This situation reminded me of something in my past. When I used
to move antique furniture, we'd inevitably break off a leg or
damage a table edge because of dry-rot in the furniture. To
this day, I will not sit on antique French chairs - give me a
good ol' 18th century, boring English country furniture any day.
When we did break something, our common mantra was "good
enough for government work." I did work at the Voice of
America so I don't feel too bad in saying something like that.

The point is, and the lesson for Relera is, that sometimes just
good enough is good enough. If it'd taken a few shortcuts in
its data center implementations, and not tried to bowl
prospective customers over with the complexity and obvious cost
of its systems, it might have lasted long enough to really test
out a business model that I think had a reasonable chance to
succeed.

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To contact Jeb Bolding:

Jeb Bolding is senior consultant with Enterprise Management
Associates in Boulder, Colo., an analyst and market research
firm focusing exclusively on enterprise management. Bolding has
10 years of experience in the network systems industry, most
recently with eCollege.com, an ASP for higher education, where
he was director of product development. He can be reached at
mailto:jbolding@enterprisemanagement.com.
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RELATED EDITORIAL LINKS

Relera
http://www.relera.com/

Network World info on Exodus
http://www.nwfusion.com/news/financial/exodus.html

Breaking ASP news from Network World, updated daily:
http://www.nwfusion.com/topics/asp.html

Archive of the ASP newsletter:
http://www.nwfusion.com/newsletters/asp/index.html
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