Servervault Case

ServerVault Case Servervault is a society in the hosting pains located in the United States which has been in operation since December 1999. A hosting comp either provides its customers with physical space for servers and supporting pro raiments. Servervault chooses only(prenominal) to operate in the managed hosting section which gives more(prenominal) value-added operate to customers. ServerVault attracts net profit-reliant and security-savvy customers. It also provides end-to-end solutions to customers. Servervault differentiates itself from competitors by offer high level of security protection.It also has enough bandwidth and government agency contribute to ensure the Internet access is always available. Servervault has three sources of revenue unmatched-time frame-up fees for innovative customers, monthly hosting fees and fees for additive value-added roleplay. Although the variable cost of serving an additional customer is relatively low, it accepts large funds to build facilities upfront. Recently, the president/chief operating officer and CFO indirect request to raise slightly roof for its expansion. The potential investors want to learn more about ServerVaults projected immediate payment necessarily to make the investiture decision.Macroeconomic analysis Economic background As it potentiometer be protruden from auxiliary A(1), the NASDAQ composite peaked at 5048. 62 in marching music 2000 before dropped dramatically to 3205. 11 in April. The major ratifier to the expiration is the internet bubble. The increasing stock prices all over the last hardly a(prenominal) years made some investors too confident in IT companies. However, the violate 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 commercialise. Hence, it is a good opportunity for ServerVault to get more market shargon.On the other hand, accessory A(2) illustrates that the U S gross domestic product has kept growing during the last six years, which suggests that the loss may only occur in the IT sector. The developing in GDP brings more business capital disbursement. (Please see accompaniment A(3)). Some of these capital spending may be used to hire third parties to strengthen firms IT departments. thitherfore, it is a good news for ServerVault since it may encounter more customers in the future. Social background An analysis in social background result help ServerVault to determine what customer needs.The lean of internet users worldwide was only about 30 cardinal in 1995, but it increases to around 280 million in 2000. Please see Appendix B. The popularity of internet offers businesses a new way to advertise and sell their products. Nowadays, people like to shop online so that more and more companies need reliable internet servers to handle colonial transactions. Since ServerVault specializes in this argona, the increase in the number of int ernet users is definitely good. microeconomic analysis Competitors Competitors are a major threat to the business.Therefore, to gain some insights of competitors businesses good deal help ServerVault to determine where it stands in relation to the exertion. According to the tuition from the Bureau of Labor Statistics, ServerVault faced intensive competition in 2000, as the number of establishments in the information processing and web hosting industry was virtually 28000. However, that number decreases by 46% to around 15000 in late 2011. (Appendix C(1)). As the demand for web hosting run has kept growing, during the 10-year period, some firms in the industry become very large while a lot of them failed.In 2000, the leading in the managed section of the web hosting industry were Digex, IMB and Data Return. The major supporter provided by Digex is largely the same with the one offered by ServerVault. However, Digex also has revenues from value-added operate including firew all management, stress testing, consulting services. It also provides computer computer hardware, software, ne bothrk technology, and systems management undeniable 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 shoes and equipment account for 77% of its total assets. (Please see Appendix C(2)). IBM operates in five-spot business pieces. Web hosting services would fall in the system and technology segment, which provides clients with business practises requiring computing power and storage capabilities. The total number of subscribe strategic 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- taxation income of 1. 6 billion. (Please see Appendix C(3)).Data extradite also offers ongoing maintenance of hardware and softw are, including content 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 normally have simple internet needs and can be fulfill by shared hosting services. Those who already owned and managed their own servers but leave out a commensurate space and a reliable internet society are customers of the co-location segment.The customers in the managed section would be companies with significant internet movement and high volume e-commerce. E-commerce in the United States grows at a extravagant 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 leave alone also grow at a fast pace. In addition, ball-shapedization, deregulation , and proficient innovation force companies to find outsourcers to get ready for the future. Please see Appendix D(2).Therefore, ServerVault can attract lots of customers with custom services that fit customers needs at reasonable cost. Substitute If in that respect are umteen another(prenominal) substitutes, the demand for the managed web hosting service will decline as customers are able to switch between different services. Therefore, it is important to determine if there are any substitutes to the managed web hosting industry. To operate internet-based applications, companies only have two options. They can either outsource that work to a third society 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 competitive. Secondly, there is financial advantage to outsourc e the work to a third party. Digex, one of the major competitors, spent around $170 million to purchase lieu and equipment. (Please see Appendix E). For many companies, it is a significant amount of cash flow.In addition, companies can sawn-off 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 apt to spend time and money in this technology. Suppliers Since server is an important infix 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 majority of them are located in mainland China and other Asian countries. Please see Appendix F(1). However, IBM, HP, Dell, Oracle, Fujitsu have almost 90% of the total market share. Please see Appendix F(2). Therefore, it is in all likelihood that ServerVault will choose to buy servers from these manufacturers, and it needs to carefully monitor the market price to make wise purchase decision. New entrants To learn more about the possibility of new entrants is beneficial to ServerVault, because new entrants will have downward pressure on prices which may affect the earnings negatively.The major factor that will prevent new entrants to the industry will be labor deficit. Please see Appendix G. In 2000, the labor shortage of computer professionals may limit the growth 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 some years. Appendix A A(1) Source http//www. google. com/finance/historical? q=INDEXNASDAQ%3A.IXIC&histperiod=weekly&ei=cKBjULDdL4mQkwPTwwE A(2) Source the raw data come from US Depart ment of Commerce-Bureau of Economic Analysis http//www. bea. gov/national/index. htmgross domestic product 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 be set up and maintained 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 past few years, business spending has risen faster than the economy. In 1999, such spending was up 8. 3% over 1998. Source http//www. netadvantage. standardandpoors. com. myaccess. library. utoronto. ca/NASApp/NetAdvantage/showIndustrySurvey. do? principle=ccs& attend=/ccs_0600/ccs_0600. htm Appendix B Source http//www. netadv antage. standardandpoors. com. myaccess. library. toronto. ca/NASApp/NetAdvantage/showIndustrySurvey. do? jurisprudence=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 ability and migration planning and database optimization. Co. services include 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 world-wide technology services, which provides information technology infrastructure 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 services 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 through with(predicate) 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 standardized 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 array of system and network monitoring and reporting services and technical support designed to respond to both simple and conglomerate 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 half of all outsourcing worldwide occurs in the United States. Demand 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 go to outsourcers to prepare for the future and to avoid 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=Productsfsb=y F(2) http//www. fool. com/investing/general/2011/03/12/server-market-share-the-strong-get-stronger. aspx Appendix GHowever, a major impediment to sustained growth is the shortage in s killed technology labor. Computer professionals, including programmers and system designers, are in short supply. Computer 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 talented computer services professionals is expected to outstrip supply, going 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