When Peritus Software Services started up seven years ago, its founders figured the only way to make money was to build an intranet as the backbone of the Billerica, Massachusetts- based enterprise.
Peritus maintains applications software, system software, and system utilities for corporate customers and software providers as an outsourcer. And because many companies didn't value software maintenance very highly when they did it themselves, Peritus co- founder, CEO, and CFO Allen Deary didn't expect customers to be willing to pay Peritus much to do it for them. He believed that his company would succeed only by stringing together "virtual teams" of less-costly software developers from such countries as Spain and India. So the intranet--which would also let Peritus offer 24-hour maintenance using time-zone differences to advantage-- was "a design that was fundamental to the founding of the company," says Deary.
But Peritus was in the unusual position of being an outsourcer in need of outsourcing itself. While it could write the software programs to run on its fledgling intranet-- another name for a World Wide Web site designed to serve an internal company audience- -the company lacked the onboard knowledge to administer and expand that intranet. So, four years ago, Peritus outsourced the infrastructure expansion to Integris, a division of Bull HN Information Systems Inc., also based in Billerica. Integris created a wide area network through which Peritus accesses its intranet. Integris also installed T-1 lines, cables that carry more than 1.5 megabits of digital data per second; designed switches and routers; and began troubleshooting, performing equipment upgrades, and monitoring network performance and operations for Peritus.
"Access to their people was the crucial area. We would have had to invest a large amount to get the expertise that Integris already had," says Deary, whose company has grown from $2.2 million in revenues in 1993 to $40 million last year, when it went public. "Cost was a component of the decision, but not a major component." From the perspective of Peritus, now with 400 full-time employees at six locations, outsourcing "is about going toward our strengths, and away from things that aren't."
Peritus is far from alone in its decision to hand off development of its intranet to an outsourcer. The total market for intranet- related outsourcing services, estimated at $960 million this year, should jump to $2.9 billion in 1999, and to $6.9 billion in 2000, according to Forrester Research Inc., a technology research firm in Cambridge, Massachusetts. While still a minuscule portion of the overall information-technology outsourcing marketplace, intranet outsourcing certainly is among IT's fastest-growing areas.
A wide range of companies are choosing to outsource their intranet development, from smaller companies like Peritus to multinationals like Swiss pharmaceuticals maker Novartis, and from manufacturing businesses to the high-tech, health care, and service industries.
With many companies considering intranets easy to install and manage, why is outsourcing enjoying such an upswing? The shortage of technology personnel and resources is one reason. A study last year by Forrester shows that 73 percent of companies outsourcing their Web development cited a lack of in-house skills to do it themselves, and 64 percent said they were short on the technical support systems for the work. Adding to the outsourcing pressure is the ever-more- sophisticated nature of the intranets, which now extend into nearly every aspect of a company to become a critical infrastructure for communications. Further, the use of intranets in general has surged. As recently as 1994, they were considered somewhat radical, but within two years, "almost 100 percent of Fortune 1,000 companies had some form of intranet," says Carl Howe, director of computing strategies for Forrester. "It was one of the fastest adoptions of any technology ever."
There is also a new wave of aggressive marketing by big and small outsourcers eager to win intranet-outsourcing business. Such traditional IT providers as IBM Global Services, GTE Internetworking, Compaq Services, Lockheed Martin Technology Services, Integris, Metamor Technologies, and Computer Sciences have already invaded the top end of the intranet-development game by offering it as part of their overall contracts. Such firms as Andersen Consulting, Ernst & Young, and PricewaterhouseCoopers help companies redesign business processes and applications to run on an intranet platform. Subscription-based intranet providers are now appearing-- including Lotus, Netscape, Changepoint, and Netopia--allowing companies to "rent" time on their existing applications and networks. There are also a growing number of small outsourcing shops that specialize in building and, occasionally, hosting intranets. And though not strictly outsourcing, remote hosting for intranet software is being offered by such traditional Internet service providers as AT&T, MCI, PSINet, and Sprint.
An Inch At A Time
Intranets let all data files and software applications live on a single server. Users need only a network connection to the server (internally or externally housed), a browser such as Netscape or Microsoft Internet Explorer, and sometimes a security access code or password, to use the intranet applications and gain access to intranet files. Intranets are platform-independent, meaning that whatever type of computer you are using, you may view the same files everyone else views, often in the same format. That's why many companies now use intranets as platforms for all business-critical applications, from human resources to manufacturing control systems. Some have expanded access to their intranets and have turned them into extranets, thereby allowing outside customers and vendors their own Internet access to the company's vital internal company data--at the same time raising ever-more-pressing security questions.
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