Loudcloud Sells Services Business to EDS

Facing a rapidly consolidating market for IT services, Loudcloud sold its managed services business to EDS and will now concentrate on selling its Opsware enterprise software. The company also announced it would change its name to Opsware.

EDS will pay $63.5 million for Loudcloud’s Web-hosting business, and signed
a $52 million three-year licensing agreement to use Opsware. EDS anticipates the acquisition will close in the third quarter.

Opsware is a software system for automating the management of their
operations infrastructure, allowing businesses to easily scale their
infrastructure according to their needs. Loudcloud plans to offer it as an
enterprise software product, decoupling it from its services offering.
Loudcloud has faced a tough market for IT services with the sluggish
economy, the steep downturn in IT budgets, and stiff competition from
traditional technology services companies like IBM and EDS.

Loudcloud co-founder and chairman Marc Andreessen said the managed services business was now a game strictly for the big players, putting upstarts like Loudcloud is an untenable position.

“When we first started Loudcloud we said we wanted to be the EDS of the Internet,” he said on a conference call this morning. “Now, EDS will be the EDS of the Internet.”

With the licensing agreement, Plano, Tex.-based EDS will become Opsware’s fifth client, according to Andreessen. It will also dwarf the others, with an initial deployment in EDS’ managed hosting business and eventually across EDS’ 50,000 servers, 14 major data centers and 140 client-owned and regional data centers. According to EDS, Opsware could help it save up to $100 million.

The deal will go a long way to stabilizing Loudcloud, the much-ballyhooed company founded by Andreessen after AOL bought Netscape in 1999. But the Sunnyvale, Calif., company has struggled to find its footing in an increasingly brutal market for IT services. In its recent first quarter, LoudCloud lost $30.4 million on $11.7 million in revenues. With $94 million in cash and a quarterly burn rate of $18 million to $20 million.

The company thought it found a white knight last August, when it signed a partnership deal with Qwest Communications. However, Qwest has been roiled by accounting probes and battered with the pronounced telecom slump.

“The markets changed a lot in the last nine months,” Andreessen admitted. “Qwest’s changed a lot in the last nine months.” He said the EDS relationship would supercede the Qwest deal, becoming the main focus of Opsware’s attention for the near future.

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