VideoWith traffic to its consumer Web site doubling nearly every year since 1996 and online transactions surpassing $100 million annually, Amtrak knew its E-business operation was strained to capacity. Its first thought: outsource everything. So in late 2000, E-commerce directors Mary Cortina and Lenetta McCampbell sorted through proposals from Digex, Exodus, IBM, and Loudcloud, companies that, as Cortina says, "definitely knew their business" in terms of technology. But the price tags proved too steep, so Amtrak added staff and transformed a data center originally intended to support legacy applications into a new E-business hub.
In general, Amtrak executives say that approach made sense: the price was right and the site has performed well. But when the September 11 terrorist attacks drove hundreds of would-be travelers to amtrak.com, the rail line didn't stand a chance. Its three-person IT staff couldn't add bandwidth fast enough to meet demand, and call centers were overwhelmed, forcing Amtrak to turn away potential customers.
The outsourcing option returned, and in an unusual way. Cambridge, Massachusetts-based Akamai Technologies Inc., a provider of E-business infrastructure, let Amtrak reroute Web traffic through its servers for free for one month following the attacks, solving the bandwidth problem. "They literally saved our site," says Cortina. As a result, Amtrak changed its mind about outsourcing and signed a deal with Akamai. Its former all-or-nothing view gave way to a mix-and-match approach in which, as McCampbell says, "the combination of internal support and outsourcing means that spikes can be handled more efficiently," whether caused by emergencies, holiday traffic, promotions, or other reasons.
While outsourcing decisions are rarely born of such drama, analysts say a growing number of companies are now realizing that E-business operations are difficult to handle alone. "We expect that companies will have to ship out at least some component" of E-business, says Jeanne Schaaf, formerly an analyst at Cambridge, Massachusetts-based Forrester Research. "Companies that do it all themselves tend to overspend on bandwidth, storage, networks, and personnel."
Choose Your Partner(s)
Research firms say that slightly more than half of U.S. companies still maintain all E-business operations in-house. "There's a cowboy mentality at some companies, where they want to do E-business all themselves. The CIO wants to be able to walk down the hall and pet the server," notes Marc Jacobson, an E-business analyst at Ovum, a Wakefield, Massachusetts-based analyst and consulting firm. But as E-business infrastructure grows to accommodate large-scale applications like customer relationship and supply-chain-management programs, he says, "going forward, the in-house approach is simply not going to work."
Outsourcing options abound, so much so that some companies are rife with outsourcing relationships, a situation often exacerbated by the fact that various departments within a company may establish separate approaches to E-business. Germany-based sporting-goods maker Adidas-Salomon AG, for example, relied on 15 companies to host various components of its adidas.com site before it consolidated with one company last summer.
Analysts say that one way to handle E-business outsourcing is to find one company that can do it all, but won't insist on doing so. Such managed service providers (MSPs) as Sunnyvale, California-based Loudcloud Inc. (which now handles adidas.com) act as a sort of general contractor, making sure clients get whatever services they need and tapping a network of providers for the underlying hosting facility, security systems, or whatever else is needed.
If Loudcloud's recent fortunes are any indication, the MSP model has legs. "A hoster without a data center," as consulting firm Gartner describes it, this high-profile start-up boasts Netscape co-founder Marc Andreessen as its co-founder. For that reason, perhaps, Loudcloud was one of the few technology companies to weather the chilly initial public offering market last March. Despite a less-than-dazzling stock price (it peaked at $7 a share in May and sank as low as $1.12 in September before climbing to the mid-$4s at press time), Loudcloud posted triple-digit year-over-year revenue growth for its two most recent quarters. By leveraging other companies' data centers rather than buying its own, and offering up slick technology--its Opsware software can automatically commission servers, patch glitches, and more--the company, analysts say, has some strong cost advantages. As its net losses steadily decrease, Loudcloud believes it can not only turn a profit in 2003 but also become a major force in E-business. How major? "We aspire to be the next IBM," says CEO Ben Horowitz.
In fact, the buzz around MSPs is so strong that some customers find it difficult to cut through the hype. Another Loudcloud client, USAToday.com, met with a variety of would-be outsourcing partners ranging from hosting companies to phone companies, all claiming to be in the MSP business. But Adriaan Bouten, vice president of IT for USAToday.com, soon found that "while everyone was trying to be an MSP, many of them wouldn't put their service-level agreements behind their pitches."
Loudcloud won the business last August, both because it agreed to rebate more than 100 percent of its service fees during downtimes and because its approach to E-business infrastructure was "about 90 percent" congruent with what USAToday.com already used.
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