Can Web hosting services become an effective cross selling platform for an interactive design and consulting firm? That’s what Xpedior CEO David Campbell is about to find out.
With the mid-June closing of the merger between business focused ISP PSINet and Metamor Worldwide
, an IT solutions company, Xpedior became an 80% owned subsidiary of PSINet. PSINet then followed this news with a $50 million investment in Xpedior and plans for an expanded global alliance.
This deal marks the first major coupling of a global connectivity and hosting firm with an established e-solutions provider. The jury is still out, though, on if this agreement will in fact provide Xpedior with enough of an edge to fend off much higher profile I-builder rivals like MarchFirst and Proxicom
for the long term.
We recently sat down with Campbell to hear his thoughts on his new relationship with PSINet.
ISR: To start things off, PSINet recently acquired Metamor Worldwide, which is your parent company. PSI then subsequently announced a commitment of $50 million in funding to Xpedior. What does this deal really mean to you?
Campbell: Well, obviously it indicates that we’re going to have a strong relationship with PSINet and yet also that we didn’t think it was right at this time to be fully acquired by them. The capital obviously strengthens us and the cash on the balance sheet helps the stock. Now, we’ll be able to use both cash to finance our growth and hopefully be able to have a stronger stock position. That will give us some currency to do some acquisitions. So I think it will help us in those two ways. Do you know PSINet, much?
ISR: Sure. Yes.
Campbell: Okay. They really have a significant strategic commitment internationally and that’s probably the third way it will effect us operationally in that we have already initiated much more aggressive international planning to expand operations. [The PSINet relationship will help] increase our expansion into Europe and initiate a whole set of activities that will take us into Latin America. We’ll be opening an office in Miami to serve Latin America and to start some activities there. We’re also accelerating our plans for Asia. So their commitments to international growth further motivate us to start our international expansion so we can link the solutions that we create to their network.
ISR: I know that PSINet is on an aggressive plan to open hosting facilities all over the world right now.
Campbell: Yes. They have an amazing commitment to over two million square feet of hosting. I think the sequence is sort of that you put the infrastructure in to have network traffic, and then you put hosting centers in to pull traffic onto that network. To some extent, we’re the third component by creating solutions to bring people onto the hosting centers and traffic onto the network. So when they make a commitment to a hundred thousand square foot hosting center, there is an implied commitment to a need to create solutions to ride on that. To some extent, that’s the business we’re in.
ISR: I can clearly see the synergies between the solutions builder and the hosting, but I would guess that there would be more of you selling the hosting services over to the client after a solution is created than the other way around?
Campbell: That’s true that we do that. But many times, since they have a higher profile then we do and an extraordinarily larger sales force for example, we believe they’ll be presented with opportunities which really will require the solution first and the hosting second, but they’ll see the opportunity. So if we can manage the opportunity flow together so that when they see one that requires our kind of solution capability upfront and bring us to the table at that time, we then create the solut
ion. They pick up the hosting and the network business. I think that’s how it will work. That’s what we’ll be investigating over the next several months.
ISR: Do you expect to see a lot more of these combinations of b-to-b Web hosting companies with I-builders like Xpedior and back end integration firms in the coming months?
Campbell: Well, I think you’re going to see a need for companies that have been infrastructure based- either network or hosting – to reach out and have some solution creation capability. I think that’s a fairly natural evolution. So I expect that we might see transactions like that. I think that the Commerce One
and AppNet
[merger] transaction is different, but similar in a way in that everybody is going to need access to these resources that really understand the rapid creation and implementation requirements of the space. Right now, these e-solutions providers or interactive architects, whatever term people use to describe our space, are sort of the major source of the large groups of people with the talent to do that.
ISR: Definitely. They’re the big human capital pools.
Campbell: These companies have I think become the place of choice for people that want to do the cutting edge work in the space. If they are the place of choice, and they can recruit, retain and grow rapidly, then I think they may become targets for people that need that solution capability.
