It seems firms outsourcing data centres have not learned not to put all your eggs in one basket. Handing your crown jewels in the form of corporate data to one firm is a risk. If a supplier overextended themselves within the traditional value chain, the clients either lost inventory or money. In this case, the clients stood to lose their data operations and even their kit.
Data centres and cloud have the power to shape our businesses in powerful ways. It is important that we choose a wise strategy for dealing with this technology shift and business model choice. To do so, we need to look at lessons learned in outsourcing from the 1990s. In other words, who’s got your data? And can you get it back?
Telco player Daisy Group has now taken control of defunct 2e2′s data centre operations. Daisy Group already runs services from data centres in Manchester, Southampton and London but according to Daisy, the addition of these 2e2 facilities doubles total available power from two megawatts to four megawatts. Under the terms of the deal, Peter Dubens, owner of Oakley Capital and chairman at Daisy Group has created a special purpose vehicle (SPV) Daisy Data Centre Solutions to buy the business and assets which include server farms in Gateshead and Reading.
The defunct Berkshire-based 2e2 had been rumoured to have broken a banking covenant in December 2012 and was running up to its credit limits in distribution. This was a cause for concern among many wholesalers and vendors due to its massive debt and has reported significant losses in the last couple of years. 2e2 had been active in acquisition, buying both NetStore and Morse while racking up long-term debts in its inorganic growth.
According to an article in The Channel, sources said that as a result 2e2 had approached numerous resellers to secure supplies by offering to split some of the margin on deals. There are also claims from some in the channel that 2e2 approached customers last month offering 10 per cent cash back on any orders in December. In the last month, 2e2 data centre services customers were asked by administrator FTI Consulting to collectively stump up £960,000 to keep the lights on. The administrator was running out of cash to fund the operation since its appointment on 28 January – 2e2 was losing £300k a day – and had no other option but to ask its data centre customers to keep things running by stumping up amounts between £4,000 and £40,000.
FTI was asked to seek out a buyer for the business. The problem got more tricky still as the kit in 2e2′s data centre is leased from HP Global Financial Services so the “validity of title” needs to be passed by 2e2 to each customer, according to an article in The Channel. However the administrator said that due to the “critical nature” of 2e2′s data centre services it was seeking to “maintain the data centre infrastructure and keep personnel who operate the data centres, to facilitate an orderly migration of the data and systems or some other alternative solutions”. The difference for 2e2 customers saved by Daisy will be that Daisy has a very strong balance sheet, with low debt and are looking to grow organically in the data centre and managed services space.
Too much too fast? 2e2 grew via inorganic growth, and bit off more than they could chew financially. Organisations of all sizes need to be agile and responsive, and want to make adjustments to their business model as they grow. But client beware, if the firm cannot deal with its own growth, it is unlikely to beneficial in helping with yours! It’s all about the business model, and choosing a partner to outsource your operations and data requires the same due diligence as choosing a key supplier for assets for your business activities.
This event leads to the continual question: Is there a need for CSP oversight? If a service provider is regulated, there is someone behind in case of failure. But not every industry has a regulator, and it is not clear that cloud services is ready for that regulation as of yet.
Using Cloud infrastructure offers an entry point that allows smaller companies to benefit from resource capabilities that would otherwise not be within their reach. But firms need to choose a partner that share its risk profile, and provides a level of comfort as to their continued existence.
Dr. Alea Fairchild, Director, The Constantia Institute bvba