Servervault Case

ServerVault Case Servervault is a federation in the hosting diligence located in the unite States which has been in operation since December 1999. A hosting company provides its clients with natural quadruplet for servers and supporting realises. Servervault accepts only to operate in the managed hosting variance which gives to a greater extent value-added service to customers. ServerVault attracts Inter illuminate-reliant and earnest-savvy customers. It also provides end-to-end solutions to customers. Servervault differentiates itself from competitors by advanceing high level of security protection.It also has enough bandwidth and indicant supply to contain the Internet access is always available. Servervault has three sources of revenue one-time setup fees for in the buff customers, monthly hosting fees and fees for additional value-added run. Although the unsettled cost of serving an additional customer is comparatively low, it requires large funds to build facil ities upfront. Recently, the president/ chief exe skitterive officer and CFO want to raise astir(predicate) not bad(p) for its expansion. The potential investors want to learn much near ServerVaults projected cash in needs to bring the enthronization decision.Macroeconomic analytic thinking Economic background As it can be limitn from accessory A(1), the NASDAQ composite indisposed at 5048. 62 in March 2000 before dropped dramatically to 3205. 11 in April. The major endorser to the passing play is the network breathe. The increasing stock wrongs all everywhere the pop off few twelvemonths made some investors too confident in IT companies. However, the collapse of the bubble took place in 2000, when a lot of IT companies failed. As a result, the NASDAQ composite witnesses a huge loss in the stock merchandise. Hence, it is a dandy luck for ServerVault to get more market shargon.On the another(prenominal) hand, appendage A(2) illustrates that the US GDP has kep t suppuration during the stand firm six years, which suggests that the loss may only spend in the IT sector. The harvest-tide in GDP brings more pargonntage capital using up. ( divert see addition A(3)). just about of these capital spending may be custom to hire deuce-ace parties to strengthen firms IT departments. in that locationfore, it is a good lates for ServerVault since it may shake off more customers in the future. Social background An analysis in hearty background will do ServerVault to determine what customer needs.The number of lucre users worldwide was only about 30 billion in 1995, but it increases to some 280 million in 2000. enthral see supplement B. The popularity of internet offers businesses a new way to agitate and sell their products. Nowadays, people like to shop online so that more and more companies need reliable internet servers to handle complex transactions. Since ServerVault specializes in this argona, the increase in the number of inte rnet users is definitely good. Microeconomic analysis Competitors Competitors atomic number 18 a major threat to the business.Therefore, to gain ground some insights of competitors businesses can help ServerVault to determine where it stands in relation to the industry. According to the breeding from the Bureau of tug Statistics, ServerVault faced intensive competition in 2000, as the number of establishments in the information processing and clear hosting industry was approximately 28000. However, that number decreases by 46% to around 15000 in late 2011. ( vermiform process C(1)). As the invite for electronic network hosting go has kept growing, during the 10-year period, some firms in the industry become precise large epoch a lot of them failed.In 2000, the leaders in the managed section of the web hosting industry were Digex, IMB and Data Return. The major service provided by Digex is largely the same with the one offered by ServerVault. However, Digex also has revenu es from value-added services including firewall focussing, show examination, consulting services. It also provides computing device hardw be, softwargon, network technology, and systems management necessary to customers. In the year of 2000, it had revenues of 168 million and a net loss of 143 million. As it can be seen from its balance sheet, it has huge investment in capital assets.Its property and equipment account for 77% of its enumerate assets. ( please see appendix C(2)). IBM operates in phoebe bird business segments. entanglement hosting services would fall in the system and technology segment, which provides clients with business coatings requiring computing power and storage capabilities. The total number of signed strategical outsourcing contracts valued at more than $100 million increases from 24 in 1997 to 58 in 2000. In 2011, the system and technology segment had revenue of 20 billion with pre- tax income of 1. 6 billion. (Please see Appendix C(3)).Data harv est-festival also offers ongoing maintenance of computer hardwargon and software, including case back-ups and system upgrades, in addition to its web hosting service. It has total revenue of $7. 1 million and a net loss of $12 million in 2000. (Please see Appendix C(4)). Customers Customers are very important to ServerVault, because they are the source of revenue. Small companies usually pitch unproblematic internet needs and can be convenient by shared hosting services. Those who already stimulateed and managed their own servers but lack a suitable space and a reliable internet connection are customers of the co-location segment.The customers in the managed section would be companies with significant internet presence and high volume e-commerce. E-commerce in the United States grows at a fast speed during the last decade. Please see Appendix D(1). Since each e-commerce company has the possibility to outsource their web host, the demand for managed web hosting service will als o grow at a fast pace. In addition, world(prenominal)ization, deregulation, and technological concept force companies to dumbfound outsourcers to get ready for the future. Please see Appendix D(2).Therefore, ServerVault can attract a good deal of customers with custom services that fit customers needs at reasonable cost. Substitute If there are umpteen substitutes, the demand for the managed web hosting service will turn down as customers are able to switch amongst different services. Therefore, it is important to determine if there are any substitutes to the managed web hosting industry. To operate internet-based finishs, companies only dupe two options. They can either outsource that work to a third party or do it by themselves.Outsourcing has several advantages. Firstly, companies should focus on the goods and services that they sell or provide. The time spend on developing internet-based application could be better spent to make their products and services more competi tive. Secondly, there is financial advantage to outsource the work to a third party. Digex, one of the major competitors, spent around $one hundred seventy million to purchase property and equipment. (Please see Appendix E). For many companies, it is a significant amount of cash flow.In addition, companies can cut the number of employees required in the IT department. Meanwhile, the outsourcing expense is tax deductible under tax law. Lastly, the technology used in the web hosting industry is usually far from clients core business area. It is not wise to spend time and money in this technology. Suppliers Since server is an important input to the business, the server price will have an impact on the profit. There is much competition in the server market, as the total number of the server manufacturer amounts to 14132 worldwide.The legal age of them are located in China and other Asian countries. Please see Appendix F(1). However, IBM, HP, Dell, Oracle, Fujitsu have almost 90% of th e total market share. Please see Appendix F(2). Therefore, it is likely that ServerVault will choose to buy servers from these manufacturers, and it needs to carefully monitor the market price to make wise purchase decision. sunrise(prenominal) entrants To learn more about the possibility of new entrants is beneficial to ServerVault, because new entrants will have down(prenominal) pressure on prices which may affect the gain negatively.The major factor that will prevent new entrants to the industry will be labor shortfall. Please see Appendix G. In 2000, the labor shortage of computer professionals may limit the harvest-time of the IT industry. As college graduates prefer to work for large companies, newly-founded companies will find it very hard to hire suitable employees. Therefore, it is very unlikely that the web hosting industry will have many new entrants in the next a few years. Appendix A A(1) Source http//www. google. com/finance/historical? q=INDEXNASDAQ%3A.IXIC&histpe riod=weekly&ei=cKBjULDdL4mQkwPTwwE A(2) Source the raw data come from US Department of Commerce-Bureau of Economic abbreviation http//www. bea. gov/national/index. htmgdp A(3) Business capital spending. U. S. corporations are primary purchasers of information technology, and they often require the help of computer services vendors in order to use it effectively. Therefore, any long-term decline in the level of business capital spending would result in fewer computers being set up and retained and would have a negative impact on the computer services industry.Figures for U. S. business capital spending (categorized as nonresidential fixed investment) are available quarterly from the Bureau of Economic Analysis. During the ult few years, business spending has risen quicker than the economy. In 1999, such spending was up 8. 3% everyplace 1998. Source http//www. netadvantage. standardandpoors. com. myaccess. library. utoronto. ca/NASApp/NetAdvantage/showIndustrySurvey. do? code=ccs &date=/ccs_0600/ccs_0600. htm Appendix B Source http//www. netadvantage. standardandpoors. com. myaccess. library. toronto. ca/NASApp/NetAdvantage/showIndustrySurvey. do? code=cox&date=/cox_0300/cox_0300. htm Appendix C (1) Source http//www. bls. gov/ces/data. htm Calculation (28000-15000)/28000=0. 46 C(2) Co. is a provider of managed Web hosting services to businesses operating mission-critical, multi-functional Web sites. In addition, Co. offers Web hosting services to the rapidly growing number of application service providers, enabling them to more efficiently deliver their application services to their customers over the Internet.Co. also offers related value-added services, such as firewall management, stress testing and consulting services, including capacity and migration planning and database optimization. Co. services imply providing the computer hardware, software, network technology, and systems management necessary to offer Co. s customers comprehensive outsourced Web site and application hosting solutions. http//www. new. mergentonline. com. myaccess. library. utoronto. ca/companyfinancials. php? compnumber=90285 C(3)International Business Machines operates in five business segments global technology services, which provides information technology root services and business process services global business services, which provides professional services and application management services software, which consists of middleware software that enables clients to integrate systems, processes and applications, and operating systems software engines that run computers systems and technology, which provides clients with business applications requiring computing power and storage capabilities and global financing, which facilitates clients acquisition of Co. s systems, software and services. http//www. new. mergentonline. com. myaccess. library. utoronto. ca/companyfinancials. php? compnumber=4427 C(4) Co. provides Microsoft-based Internet hosting servi ces to businesses, web site developers, application service providers and other organizations. Co. s advanced hosting services enable its customers to establish and maintain e-commerce and other applications finished which they can conduct transactions and manage information on a worldwide basis over the Internet. Co. rovides management services for its customers hosting needs, including consultation and recommendations on interchangeable system architecture installation, configuration and stress testing of hardware and software ongoing maintenance of hardware and software, including content back-ups and system upgrades a broad regalia of system and network monitoring and reporting services and technical support designed to respond to two simple and complex system issues. http//www. new. mergentonline. com. myaccess. library. utoronto. ca/companyfinancials. php? compnumber=98629 Appendix D(1) Source www. destevenwhite. com D(2) According to IDC, slightly more than one-half of al l outsourcing worldwide occurs in the United States. hold is being driven by globalization, privatization, deregulation, and technological innovation. These factors are leading to increased global competition, which is forcing companies to focus more on cost-cutting measures.However, companies arent using outsourcing just to cut costs and get out of trouble. Now they are also turning to outsourcers to prepare for the future and to neutralize trouble down the road. Source http//www. netadvantage. standardandpoors. com. myaccess. library. utoronto. ca/NASApp/NetAdvantage/showIndustrySurvey. do? code=ccsdate=/ccs_0600/ccs_0600. htm Appendix E http//www. new. mergentonline. com. myaccess. library. utoronto. ca/companyfinancials. php? compnumber=90285 Appendix F(1) http//www. alibaba. com/trade/search? SearchText=SERVERIndexArea=Productsfederal savings bank=y F(2) http//www. fool. com/investing/general/2011/03/12/server-market-share-the-strong-get-stronger. aspx Appendix GHowever, a m ajor impediment to sustained growth is the shortage in skilled technology labor. reckoner professionals, including programmers and system designers, are in short supply. ready reckoner and data processing added 8,000 jobs in March 2000, a rise of only 0. 4% (or 4. 8% on an annualized basis), representing a slowdown in the rate of growth from 1999. Over the next few years, demand for expert computer services professionals is expected to outstrip supply, go away many positions unfilled overall. Source http//www. netadvantage. standardandpoors. com. myaccess. library. utoronto. ca/NASApp/NetAdvantage/showIndustrySurvey. do? code=ccsdate=/ccs_0600/ccs_0600. htm