Data center owners argue that the most effective systems management can be delivered only on the spot, within the same facility. But pureplay MSPs insist that, unburdened by the overhead of maintaining their own facility, they can offer a more flexible and cost-effective service. Who's right?

The pendulum seems to be swinging in favor of the pureplays. Out of three leading MSPs profiled in July's ASP News Review newsletter, only one — Telenisus — operates a data center, and even then most of its MSP business consists of remote management of its customers' in-house infrastructure. The other two — InteQ and Totality — are both happy with a pureplay business model.

"This model of operating with any data center has been very powerful for us from day one," Totality's vice president marketing and business development Sharmila Shahani told ASPnews. "Most issues and changes can be done over the wire. The other advantage is, it keeps our burn rate very low."

That comment about burn rate brings out a key point. Now that the cost of data center space is plummeting, MSPs that allow their customers to shop around for the best hosting deal are starting to look smart indeed. Competitors that bundle hosting as part of the service are left locked into higher cost structures that will eat into margins if they can't justify a substantial premium for the all-in-one offering.

Last week brought further evidence that management services are ebbing out of data centers. Web-based application hosting specialist Avasta became the latest entrant to the MSP market, launching a remote version of its formerly data center-bound application management service. See Avasta Launches RemoteServ, July 31, 2001. This pattern is becoming a well-beaten trail, one which sector darling LoudCloud espoused as long ago as April — see Loudcloud Targets the Enterprise.

The next evolution of this trend will be for enterprises to mix-and-match services from multiple remote MSPs, selecting each according to the particular specialist expertise they can bring to bear. Too difficult to coordinate? Not if the recently launched Global MSP Network has its way.

This new alliance of pureplay MSPs has published guidelines to help its members coordinate services from multiple MSPs within a single customer contract. Thus a new, equally bitter debate, looks set to open up: Will customers best be served by a mixture of best-of-breed providers, or is an integrated single source the better option?

Second-Hand Infrastructure
Another way to avoid the deadweight cost of expensively acquired data center infrastructure is to buy someone else's at today's knockdown prices. The best deal to date was announced last Tuesday (July 31st). The remains of managed hosting and network infrastructure provider Intira will be bought for just $1 million in cash, plus $6.8 million in credit.

Founded as dbn (short for data broadcast network) in 1998, and then launched with great fanfare in October 1999, Intira swallowed a total of almost $400 million equity and debt funding in its short life, including a whopping $140 million second round in October last year — see the ASPnews profile, Intira Turns Digital Broadcasting into an ASP Hosting Business. Now the pick of its infrastructure and staff, along with a customer base generating a claimed $1.8 million in monthly revenues, is to be acquired for a pittance by up-and-coming industry player divine.

Having shaken off its heritage as divine interVentures, a once-glamorous Internet incubator, divine is rebuilding itself as a leading provider of application management, Web-based technology and related professional services. At the core of this business are the assets it acquired from failed Web integrator MarchFirst in April this year, including its HostOne ASP division, and the enterprise information portal platform vendor SageMaster. A series of other acquisitions are in progress, intended to build divine into a major Internet computing industry player.

The track record to date of similarly rapid roll-ups in the ASP industry does not necessarily bode well for divine's prospects — Futurelink and Interliant come to mind as examples of companies that grew fast through multiple acquisitions and then stumbled. But the divine clearly has an astute mergers and acquisitions team and does a good job of presenting a professional corporate image. Now it has to make sure its execution lives up to that image.

This review of the week's news highlights is by ASPnews.com founder and consulting analyst Phil Wainewright. A comprehensive news digest is published every month in the ASP News Review newsletter, available exclusively to subscribers.