Posted by: paragon | October 28, 2006

Interview With Douglas J. Erwin CEO of ThePlanet / EV1

Interview With Douglas J. Erwin

Interview by Liam Eagle, theWHIR.com

October 20, 2006 — (WEB HOST INDUSTRY REVIEW) — In May of 2006, EV1 Servers and The Planet announced that they had merged, under the auspices of investor GI Partners. In June, the company’s new CEO Douglas J. Erwin told theWHIR he had a 90-day plan to develop the organization’s new direction. Three months later, we spoke again, with the company headed confidently in a new direction.

WHIR: We spoke when you were about a week into your tenure at the company, still getting your feet wet in the hosting business. I’m wondering where you are now with that.

Douglas Erwin: We’ve been moving fiercely fast since then. It’s hard to believe it was only July that we really started this. But we’ve made a lot of progress in trying to get these two companies integrated and positioned in the market as a very world class hosting business.

Let me just rattle for a while about some of the things we’ve done, and then you can stop me.

We’ve made a lot of progress in thinking about this dedicated hosting or IT infrastructure outsourcing. And I think that we’re fortunate that we’ve been able to take two very world class, innovative-thinking organizations that have built not only world class hosting business, but world class infrastructure facilities – our data centers.

The hosting business has a plethora of organizations that have a nice little business, good cash flow. But they’re businesses that deal a lot with what I’ll call less-than-mission-critical stuff, steering themselves to mom-and-pops in the customers that they deal with and shared business and $10 slices of servers.

What we’ve done – and give the credit to the founding people of these two businesses – but the organization and data centers we’ve built are far more than that. They’re capable of handling mission critical [hosting demands] 24-7. In open systems you can’t ever talk about 100 percent uptime, but you can sure talk about high availability into the triple-nines and in some cases into the four nines.

We’ve spent the last two or three months talking to anybody we could, inside our company and outside our company, and most importantly to our customers. We have taken the top 16 executives in our company, and I’ve given them seven names each of seven customers that represent our top 100 or 150 accounts. We called them and basically got a report card on things like: How does our service rate on a scale of 1 to 10? What do we do that you like? What do we do that you don’t like? Where are we screwing up? What more things would you like to see from us to help you and your business?

We got pushy and asked them about business, where else they outsource. Because what we’d like to do is find our customers and build a solution where we get our fair share of their outsourcing money.

In my terms our fair share is 100 percent.

So we have collected a lot of information, and taken action on a lot of these things. A lot of our customers are very complimentary of our world-class data centers. They don’t know that our facilities are built with N+1 redundancy and that the bandwidth and the networks that we’re building are being prepared for the future applications in hosting and infrastructure (which is video). They don’t know that we are building redundancy now between our two cities. We have a NOC in Houston and a NOC in Dallas now, both of them capable of handling fail-overs and running each other’s facilities. In a normal hosting business, people wouldn’t necessarily expect that, but where we’re taking our business, they will demand that.

And we will announce next week an unbundling of our pricing. Our customers have complained that we sell them a lot of things they don’t really need, but since we’re the [service provider] they want to use, they have to buy it. So we’ve unbundled it and we will be announcing a shopping cart that allows these guys to basically pick and choose, and customize what they need for their business.

I think the future of hosting is not about selling servers, but it’s about selling solutions to customer issues. And for some it’s more bandwidth, for some it’s more storage, for some it’s faster processor, less storage. And all these things are what we’re trying to build. So we’ve also expanded our product offering. Some of our customers have requested they need a lower entry box – we do a lot of business with resellers – so we’ve announced a lower-end box. A lot of our customers want more handholding. We’ve announced private racks in the Dallas location, which we already had in Houston. But it’s basically the ability for us to do colo on steroids, if you will, where we’re actually selling and maintaining the products in their facilities, with extended service capabilities. We’ve got the white glove series in trial form. It’s the top of our service line. It’s where we put dedicated people working on these customers’ boxes 24-7. The thing is, you can imagine you’ve got to be a pretty big company to want that, and pay for it.

Really, we’re taking our business and splitting it into three businesses. If you think of the hosting business – and this has been one of the biggest debates I’ve had with inside and outside people and analysts and other hosting executives at conferences – I ask people to describe the hosting business to me. What is it?

And it really can be broken down into three main buckets: the shared or virtual side; the dedicated side, which really has two sides – unmanaged and managed; and then the area called complex hosting, which has your colo, and it has your “fanatical support,” if you will. We play, and have played, very strongly in the shared and virtualization and the low-end servers. That’s one business. It’s really the dedicated unmanaged server business. We’ve built a separate concept around that business because it has different parameters, different product requirements and different service requirements. And we’ve built a second business that we’re getting ready to launch, and that’s the one that’s going to deal with dedicated managed. And then the third one will be the complex, as we call it, or the colo on steroids – our private rack business.

We have also heard from our customers – and one of the things that came out loud and clear from all of our customer calls is – that we know very little about our customers and what they need. We are very much an inbound organization where customers call us and say “this is what I need, let’s buy it.”

We’re building a sales organization that basically overlays this business, where we’ve got key account reps that are assigned to our top 400, or I should say the top 5 percent of our customers. Because we have a colo business we have a separate sales organization now focused on the colo business. And we have a separate organization focused on what I will call the masses.

And we have another organization we’re building that we call the “enterprise guys,” and these are the ones that are dealing with none of our territories, none of our install base. But they’re going out and beginning to talk to enterprises that need special services, or they’re recruiting other people that are using other hosting companies, to try to bring them into our company.

And the last thing we’re focusing on is our customers have also complained about our billing procedures. And they think that we’re inflexible and some of them don’t want to pay monthly. They want to go to an annual base and they want a benefit for an annual contract. Well, that’s simple enough. We’re announcing next week both monthly and annual prices where the annual price will be an 8 percent lower cost, but it will be paid 12 months in advance.

So these are just a few things that we are starting to do to build on the strength, if you will, of what we’ve inherited.

Part of the plan for the 90 days between then and now was to assemble a new management team. Have you put the team that you want in place?

We put a new management team in place, and I say new in the sense that everybody’s new because there are new responsibilities, but we’ve got a number of people from the old EV1 and Planet organizations, and we’ve brought in some new talent from outside.

The CFO that I brought in is a gentleman by the name of Kevin Klausmeyer. Kevin and I have worked together in many accounts, and he is a proven CFO not only for a startup company, but for a large corporations. He was a controller at BMC when I first hired him away. He’s on the board of directors of Quest Software. He has been responsible for helping me raise well over $200 million of capital. We’ve sold companies together. He is, with BMC, a known commodity on Wall Street, very well connected with investment bankers, so that when we declare it’s time to take this company public, his proven track record in dealing with banks and Wall Street will make it very easy to make that transition again into that space.

Steve Kahan is a guy that I’ve recruited away. We’ve worked together in the past. His specialty is marketing. He’s probably the most marketing savvy guy I’ve met in my life. He was the CEO of a small startup in Houston and what I convinced him that he really needed to do was come help us build one large Web hosting company here in Dallas.

I should back up there. We’re located in Texas, but with worldwide benefits. Sixty percent of our customers are international. The fact that we’re in Texas doesn’t have anything to do with our customer base. We intend to expand our customer base both organically, and if it makes sense, inorganically.

We have also brought in a new sales leader, Chris Hampton. Chris will be our vice president of sales. He comes from a long track record of success in building sales organizations that have dealt with the customer base that we’re talking about: small and medium-sized businesses, as well as enterprise businesses.

We’ve brought in a counsel by the name of Joe Horzepa. We’ve brought in some HR personnel.

There’s a gentleman by the name of Jeff Lowenberg, who was responsible at EV1 for building all their data centers. He’s an operations expert. He built some of the best data centers that I’ve seen in my 32 years in the IT industry – N+1, tier 2, tier 3 type centers that make a lot of sense for the enterprise businesses that we want to go after.

We also have a guy by the name of Will Charnock, who was in the Planet organization. And Will has a networking background and a technology background. We’re using him to be what I’ll call our research organization, where we go out and we try to understand what’s going on in the marketplace in the hosting business, and look at technology that’s out there and available and try to be early adopters of some of the new technologies so that we can go to market before anyone else. He finds the technology, our product line organization under Kahan builds the business plan around it and makes sure it integrates into one of our business plans and then we implement a business case and implement against it.

We’ve hired in some PR talent. We’re in the process of filling out some of the technology and networking holes that we have. So we’ve done a lot of promotion, as well as bringing in new talent. We’re fortunate that we’ve got so much skill in our company that we’re able to promote from within. And when we don’t have the skill within the organization, we go outside. We’re not afraid to bring people in.

I think one of the things that people will see as they begin to feel the presence of our new company, is a tremendously strong management team, that if we all stood in front of you and took our shirts off, it’d be an ugly sight, but it’s a mature organization that’s got all the bullet holes and knife wounds and scrapes on our backs. We’ve probably got 175 years of management. We’re not just out of school, or your typical startup management team.

So it brings a sense of maturity, but it also brings a sense of creativity, because they all come from different walks of life.

Do you have a firm idea of how you intend to approach the brand, or brands?

If you’re asking will the brand names that we’ve had in the past, like ServerMatrix and Monster Servers and all that stuff go forward, the answer is no. And the reason is it gets back to the concern the customers had that when we sold them ServerMatrix or Monster Servers, they were pretty much configured the way they were. What we want to do is brand our name, and we want to brand our name as an infrastructure and hosting company that allows the customer to customize what they actually need.

So you will see us focusing on ads that push our company name and our company logo. And all of that we will be announcing in the January timeframe when we have a new Web site that supports all of that.

When you say “the company name,” is that going to change?

We will tell you that at the beginning of the year.

But you know what it is?

Yes.

Are there significant technologies or practices that were adopted from one side and applied across the board?

Absolutely. The EV1 organization had a strategy called “private racks,” which was very successful at EV1. We’ve brought that to Dallas and are now selling that across the Dallas install base. We have some technology used in Dallas to provision our servers and manage our inventory.

There’s one other key manager I didn’t tell you about that is our secret sauce, and what will differentiate us from other managed hosting companies – and that is our intellectual property, which we will use to manage these data centers. We will be pushing as hard as we can to get to a lights-out data center concept. Now, lights-out in the open systems can never happen, because you will always need a few technicians to touch boxes. But there’s no reason why we couldn’t open a data center in the middle of a cornfield in Iowa if we chose to, if we had the right software and intellectual property back in Houston and Dallas that allows us to monitor, to do upgrades, to do upgrades, to do provisioning, to do fixes and makes it a very automated process.

As I said, to do hardware upgrades you’ll have to touch boxes, and you’ll need to have the technicians to do that. But the concept is to get to a position where we can be as responsive as possible with customers as they order new equipment or upgrade equipment or need checks and balances.

We will be offering monitoring services that we haven’t in the past. And these are things that we played with in Dallas, and we’re taking to Houston.

We have built NOC centers in Dallas in Houston that will operate under the same guidelines. We are building escalation practices that will now operate under one guideline. We’re building a single way of operating, if you will, taking the best of both worlds. And in some cases, we don’t have the best, and so we’ve gone out and borrowed from other people who we think are doing a pretty good job, and we’re implementing that inside our business.

We’re not so proud; if somebody else has a better mousetrap and it fits in our business, we’ll use it.

The gentleman running the research and development for us is a guy by the name of Brian Lynn, and he’s got organizations both in Houston and Dallas that are creating this software strategy – the glue that holds it all together.

So we will have not only a corporation strategy, but we will have sub-strategy. We’ll have an IP or a software strategy that goes from the minute the box enters the back door to the moment the box, 10 years later, is out. We’ll have a server lifecycle strategy. As far as customers are concerned, they want to be buying the newest hottest stuff. And that usually lasts anywhere from two to three years. But we will find ways to utilize those servers in another life, allowing customers to do scale-out and grid computing. So there’s a whole other technology jump that we’ll be making. We’re not ready to announce it today, but it’s something that you’ll see probably come around the first quarter.

We will have a sales strategy, we’ll have a marketing strategy, we’ll have an efficiency strategy, we’ll have an operations best-practices strategy. But this is just basic blocking and tackling that we’ve never done before in this company that we will be implementing with this new management team.

If the new year marks the launch of the new brand and the new identity, are there specific things you intend to accomplish between now and then?

Sure. A lot of what I just told you we will be announcing next week. But there are some things that just take a little bit more time – to build the Web site the way we want it. So we’ve got to do that right. I’d rather do it right and make a big splash. You will see us continue to build these best practices. We’re working on our network. We’re building a network that links together the Houston and Dallas operations so that we can provide the same kind of service and network quality to every customer, whether they’re a Houston or Dallas customer.

We’re starting now to sell customers the capability to have backup servers in a different town. So we have large customers in Houston that we’re backing up, but we’re backing it up in a data center down the road. Now we’re going to back it up in Dallas. And we’re going to take Dallas customers and back them up in Houston, so that we have the capability in case of any kind of a disaster that we can hopefully survive and get the customer back up and running as quick as possible.

I point this all out to you because it’s a lot more than the hosting company EV1 and The Planet was when we migrated them together.

You personally were not a Web hosting executive before you became involved with The Planet and EV1 Servers. Do you have any new ideas you intend to introduce to the Web hosting business?

Absolutely. The Web hosting business has been a business that has grown up twice – once, then the dot com bust, and now again. I think people are seeing this new breed of hosting, and then this consolidation and integration going on within the industry. They’re taking it the next level up. They’re taking it to the next level of service to the customer. They’re taking it from just being a Web site or email to mission critical applications that are running.

A lot of my background, in fact all of my background, has either been in the hardware or software side of enterprise customers – selling lights-out data center concepts, selling software that allows for as much uptime as possible, selling networks that give you redundancy that not only handles your stuff today but your next application for the future, which is media streaming.

The software that we’re going to be implementing, the strategy of having something that goes across the entities from provisioning to upgrade to lights-out management, that’s where I’ve spent the last 10 years of my life – at BMC with systems management, PentaSafe with the concept of a single console handling multiple servers in a security base, and then last but not least the RLX experience where we were building not only great computing software but provisioning and mass deployment of servers.

So a lot of what I’ve been playing in plays right into the future of this business. And I’m blessed with the fact that I’m surrounded with people like Jeff and Will and Brian, and people who’ve been in the hosting company since its early years.

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