New AboveNet Shifts to Premium Solutions

theWHIR.com on January 22, 2004

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New AboveNet Shifts to Premium ServicesBy Max SmetannikovFrom Internet Hosting Month-to-month, January 2004 editionJanuary 22, 2004 — Soon after emerging from chapter 11 reorganization, AboveNet (above.net)seemed to have driven fiber prices intro the ground, all-but-killed itsmanaged solutions business and drastically stripped down its employees.But all these indicators have been misread asan effort by the organization to recreate its commodity business model minusdebt payments. The new AboveNet is all about premium services, says thenew chief executive.The new AboveNet is the old MetromediaFiber Network, which emerged from bankruptcy reorganization minus itsPAIX peering enterprise (sold to Switch and Information), minus redundantemployees and minus some data centers and customers of SiteSmith, themanaged hosting organization MFN bought at the height of the bubble. Thebig distinction in between the new AboveNet and the old MFN is the debtthe firm carries. MFN tanked with nearly $ 3 billion in paper.AboveNet emerged with just more than $ 70 million in debt, and roughly asmuch cash as debt – a hallmark of a steady enterprise.The departure of chief executive JohnGerdelman, who led the company’s reorganization, leaving and hisreplacement by long-time operations chief William LaPerch, promptedspeculation that investors are disappointed that the venture appears tobe pursuing the very same organization model that failed the first go round.Indeed, a surface glance at AboveNet reveals all sorts of worrisometrends. Initial the CEO shuffle. Then the sale of PAIX, which amounted toa de-facto exit from the peering company. Then what looks like ongoingdisintegration of the managed hosting unit – the SiteSmith power duoTreb Ryan and Richard Dym are operating on yet another managed servicesstartup while AboveNet seems to be losing managed buyers left andright. And lastly, reports from the fiber trading trenches thatAboveNet rates are competitive to the point of absurd.”The new AboveNet technique is not at allbased on us getting in a commodity organization,” says LaPerch, interpretingeach unfavorable text message advertising software program indication in a way that supports the thought thatAboveNet has repositioned its organization as a far more higher margin affair.The CEO shuffle? Gerdelman’s job was toguide the firm by means of a extreme monetary crisis, he by no means wanted toimplement the vision for the new business assembled throughout thebankruptcy reorganization. PAIX sale? A non-core unit that did tiny for company’s all round value. Managed hosting disintegration? Completenonsense. The company nonetheless retains a “large Seattle-based softwarecompany” (Microsoft, according to properly-placed sources) as a managedhosting customer. Yes, some high-upkeep clientele were provided theboot, and the focus placed on automation and hands-off managedservices, but that approach operates for the highest margin customers, theonly type AboveNet desires. And by the way, the company by no means sold itsLondon data center. It nonetheless has clients in the UK. Dirt low-cost fiber rates? Well yes, incertain markets exactly where cost competition is stiff AboveNet iscompetitive, but in truth the organization raised its rates upon coming outof chapter 11.LaPerch’s points make a lot of sense inthe context of AboveNet’s new path. The new AboveNet plans tocompete based on a mixture of assets, not just the reality that itowns fiber and data centers in crucial telecom markets about the planet.This indicates AboveNet seeks to win clients that require some combinationof managed services and telecom facilities, but not 1 or the other.The firm moved away from some of theexcesses of its old corporate policy, in which it saw the managedservices component of its company as a car for securing bits and bytesto fill its emptyish backbone. That old policy triggered a couple ofsituations where enterprise buyers searching for redundancy passedAboveNet for providers that presented them a choice of extended distance datacarriers.The new AboveNet impacted practically a total about-face here, expanding its relationship with Equinix (equinix.com)specifically to enable for customers to interconnect with third partyproviders. Although establishing such a policy was AboveNet’s option,adopting it was a marketplace reality.”The days where we could run a data center exactly where clients could obtain IP transit only from us are over,” said text message advertising software program LaPerch.Even although AboveNet no longer owns PAIXit didn’t drop access to the facility, which is now owned by Switch andData. Nonetheless, AboveNet seems to be de-emphasizing peering from itsmarketing, offering access to peered bandwidth at Equinix and PAIXthrough its colo organization, but focusing mostly on selling transit.The lengthy-term strategy for AboveNet is tore-establish itself in the marketplace as a seller of some thing otherthan commodities like bandwidth and colocation. LaPerch describesAboveNet’s core organization as enabling an “unconstrained informationexchange,” arguably a pretty vague category but efficient for AboveNetas it fits every little thing from Gig-E fiber transport to managed loadbalancing, as long as the objective is connecting two desktops for anenterprise client trusting mission vital applications to an IPnetwork.It’s no wonder this notion has not yetregistered in the marketplace. AboveNet partners at Equinix, forinstance, nevertheless see the AboveNet enterprise as fiber-plus-colocation,assuming the model is inherent for any company with a national backboneconnecting a number of data centers.”I do not believe the AboveNet of todayshould be any various than MFN of yesterday,” said Jay Adelson,Equinix CTO and founder. “But it’s a wait and see predicament – it’s tooearly to inform if the firm has changed its strategy.”In a sense, AboveNet does not have muchtime to communicate its new message. Its current customers were freeto leave as of the company’s September emergence from chapter 11. Butthe genuine query is no matter whether AboveNet really requirements these clients asthe basis for evolving into an IBM International Solutions. If the business canmake money with the assets it has now, selling dirt low-cost bandwidth andcolocation in nicely-placed data centers and selecting only high margincustomers, and combine these assets with lightly-staffed managedservices – it would be impractical to reject this enterprise.LaPerch seems to think that, in the end,his functionality will be judged by the company’s balance sheet, not thelatest array of buzzwords.”Our singular concentrate is on the EBITDA,” says LaPerch. “We need to have to generate value for our shareholders.”

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