SUNNYVALE, CALIF. - Loudcloud, the managed infrastructure services company founded by former NetScape exec Marc Andreessen, is scrapping its services business in order to focus exclusively on software, the company announced Monday.
It said it is selling its hosting business to EDS, which also will license the Opsware automation technology that has been the foundation of Loudcloud's services business. In addition, Loudcloud is changing its name to Opsware to reflect its newfound focus on becoming an enterprise software company.
The firm earlier this month indicated its plans to license its Opsware automation technology for use behind the corporate firewall. The Opsware technology enables server and application management functions to be done automatically, rather than manually, saving time and improving reliability, the company says.
Despite the automation technology, however, Loudcloud was hit along with other Web hosting companies by a sluggish economy and the erosion of its early dot-com customer base. Analysts saw the decision to license the Opsware software as a kind of last gasp effort to offset a lagging services business.
With Monday's news, Loudcloud is divesting itself of its services concerns. Under the deal, EDS will pay $63.5 million for Loudcloud's managed hosting business. Loudcloud says the business, which includes about 50 clients, should generate about $75 million in revenue this year.
EDS also will use Loudcloud's Opsware technology to provide automated management of servers and hosted applications, paying $52 million over three years. EDS initially will use the technology within its managed Web hosting business, eventually using it to service more than 50,000 servers in 14 data centers and 140 client-owned and regional data centers worldwide.
EDS expects to save more than $100 million in operational costs over the term of the agreement by using the Opsware technology, DougFrederick, executive vice president and sector executive for EDS Operations Solutions, said in a statement.
Jeff Kelly, president of EDS global hosting services, said during a conference call with the media and analysts that the Opsware technology will give EDS a boost in the managed hosting market.
"We think it gives us advantages in the productivity area," he says. "It will provide a foundation for widespread automation of our service delivery and application management functions.
Andy Shroepfer, president and founder of Tier 1 Research, agrees the acquisition may help EDS gain ground on managed hosting competitors. IBM leads the managed hosting market and holds four times the market share of EDS, Shroepfer says.
"What does EDS do to try to eclipse IBM? Try to come up with a capability that IBM doesn't have," he says. "It's the perfect thing that EDS could have done short of buying [managed hosting provider] Digex."
The acquisition of Loudcloud's managed hosting business is expected to be completed in September and be neutral to EDS' earnings in 2002. Upon closing, 140 Loudcloud employees in Northern California, Virginia, New York and the U.K. will transition to EDS.
As for Opsware, Loudcloud CEO Ben Horowitz will remain as CEO of the new company and Andreessen will remain as chairman. The company, which will retain about 100 employees, will continue to be headquartered in Sunnyvale.
The IDG News Service is a Network World affiliate.
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