Exodus Communications Inc - Major Acquisitions

MAJOR ACQUISITIONS

In March of 1998, Ellen Hancock, a former executive for Apple Computer Inc., IBM, and National Semiconductor Corp., was hired to take the lead of Exodus. That same month, the firm went public. Under the leadership of Hancock, Exodus made its first acquisition in October, with the purchase of Arca Systems Inc., a leading Internet security solutions provider. As concern for security in network systems continued to rise in the late 1990s, Exodus was able to tap into Arca's expertise in security solutions.

Exodus's second major acquisition was the January 1999 purchase of American Information Systems (AIS), a Chicago, Illinois-based provider of co-location, Web hosting, and various other Internet management services. The deal smoothed the firm's entry into the Midwest market and gave it access to handful of large customers including ABN Amro, Ameritech, Crain's Chicago Business, First Chicago Bank, and Motorola. Exodus opened its Chicago IDC shortly after the purchase. The firm also completed the $100 million purchase of Cohesive Technology Solutions Inc. in April. Cohesive's networking, Web applications, and technology solutions became part of Exodus' managed service offerings. As part of the deal, Exodus secured the leading position in the Web hosting provider market. Additional acquisitions included Service Metrics Inc., a performance analysis provider; and Global Online Japan Co. Ltd., a Japanese-based IDC provider that gave Exodus quick access to the Asian market.

Exodus entered the new millennium intent on continuing its buying spree. The firm beefed up its security offerings once again when it bought the Professional Services Division of Network-1 Security Solutions Inc., a security and network design consultancy. With the purchase of testing services provider KeyLabs Inc., Exodus was able to offer its customers services that tested e-commerce sites for performance problems or other issues before they went live.

In January 2001, Exodus acquired GlobalCenter Inc., a subsidiary of Global Crossing Ltd., for nearly $6.5 billion. The purchase positioned Exodus as the leader in the Internet hosting services market with more than 4,500 customers, including the likes of AC Nielsen Corp., Adidas, Ernst & Young LLC, Google, Lycos Inc., USA Today, and Yahoo!. Upon completion of the deal, Exodus' strategic partners included Accenture, Cisco Systems Inc., Compaq Computer Corp., EMC Corp., Inktomi Corp., Microsoft Corp., Oracle Corp., StorageNetworks Inc., and Sun Microsystems Inc.

Although Exodus had grown significantly from its early days in 1994, the company was undermined by shifting industry demand in 2001. In April, the firm's chief financial officer, chief operating officer, and vice president of marketing left suddenly after substantial cash losses were reported. According to a May 2001 Forbes article, the firm's "simple brand of hosting is falling out of favor. In the Exodus model, customers rent floor space and Internet access, buy their own servers and manage them on their own. Today customers want 'managed hosting' with the Web hoster buying the iron and looking after it, selling computing power the way a utility sells electricity." In response to the changing demand, Exodus began its foray into managed services, an expensive shift that required restructuring among the firm. To cut costs, the company reduced its work force by 15 percent, but at the same time it also needed to hire and train additional engineers to oversee the move into managed services.

Another issue plaguing Exodus was the downturn of many dot-com companies. Exodus secured nearly 40 percent of sales from Web-based businesses, but the e-business firms that had experienced great success in the late 1990s were falling short of sales expectations and going out of business at a rapid pace. Exodus also faced increased competition as telecom and other tech firms joined the hosting services market, which was expected to continue growing into 2004. As Exodus battled these problems, management continued to focus on developing managed and professional services. The company also worked to expand its core business and emerge in new geographical areas in order to remain the leading U.S.-based hosting service provider.