November 15, 1999
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The Search For Commitment
BMG Direct seeks a sense of urgency, and good chemistry, with its Web host
Palmieri's drama illustrates why many large companies are outsourcing Web hosting. E-commerce applications demand around-the-clock availability and a continuous sense of urgency. As a result, outsourcing decisions often depend as much on uncovering a roll-up-the-sleeves com- mitment from a hosting partner as on finding adequate costs and infrastructures. Says Elizabeth Rose, VP of strategic planning and E-commerce at BMG Direct: "You have to ask yourself during the selection process whether you could pull an all-nighter with this person to solve a problem."
BMG Direct is the world's largest record club, with more than 10 million active customers. BMG Direct, in New York, is a unit of BMG Entertainment, the $4.1 billion worldwide music and entertainment division of Bertelsmann AG. Media Met- rix, an Internet traffic measurement group, has ranked BMGMusicService.com as a top 10 online shopping site. The site grew from 25,000 to 2 million users in about 18 months, and traffic is expected to double byJune. The 7,000 daily orders flowing through the site represent about 10% of BMG Direct's revenue.
In addition, the unproven nature of many IP applications placed a premium on Web and networking skills that were hard to find in-house with only four BMG staffers working directly on the site itself. Parts of the application development process are being outsourced to Quadrix as well.
The outsourcing decision met initial resistance from the IT department, mostly caused by change-management issues and classic concerns about placing key operations in the hands of outsiders. Sometimes these concerns were camouflaged by questions concerning Y2K contingency plans or legal risks.
Such worries about outsourcing risks are outweighed by measurable benefits, especially for Web hosting, according to Peter Bendor-Samuel, CEO of The Outsourcing Center, an outsourcing information portal in Dallas.
He says an outsourcing vendor can usually deliver a better E-commerce site up to three times faster than an in-house effort at a cost of 10% to 30% less.
But the fears were more than emotional: They were brought home by BMG Direct's first choice of a Web-hosting vendor, which did not meet requirements for either bandwidth or responsiveness. Jackson Sie, associate director of IS, had to monitor the site continuously himself and even inform the vendor when the site went down. Weekends were spent in the trenches dealing with hardware issues. "It was really bad," says Sie.
Illustrating the even- tual depth of the relationship, Quadrix has promised to limit its own client base to ensure continued high service levels at BMG. Once, Quadrix even purchased hardware when the requisition was tied up inside BMG Direct. "At first, I thought chemistry was important; now I believe it's critical. We treat Quadrix as an extension of our business, and they respond in kind," says Rose.
Quadrix managed BMG Direct's move to a new architecture at a Level 3 Communications Inc. data center in Weehawken, N.J., in August. At the "eData Center," load balancing and redundancy were added to a three-tiered architecture comprising Web, application, and database farms. Internet orders are collected by the Quadrix facility and sent via batch file transfers to Indianapolis for fulfillment. Information about customers is also held within BMG's Indianapolis mainframe for personalized presentations. The product catalog is maintained on an Oracle7 database at BMG Direct's facilities in New York. Connectivity is via T1 links, and the data streams are united by Dynamo E-commerce software from Art Technology Group Inc.
BMG Direct has benefited from the outsourcing arrangement. The site has handled continuously rising levels of traffic well, despite a few hiccups associated with the shift to the new data center. Instead of careening from crisis to crisis, Sie and his IS staff are concentrating on more strategic activities, such as planning a migration to Oracle8 and deploying an advanced document-management system.
To ensure continued outsourcing success, Sie emphasizes the importance of his role as a dedicated manager who ensures schedules and commitments are met. "Outsourcing is too important to be handled by a vendor," says Rose. "It needs to be handled by a partner."
For most companies, an E-commerce rollout requires the same care and feeding as a new baby. With Quadrix in the role of BMG Direct's "nanny," the site is healthy and growing.
Photo by Giorgio Palmisano
Return to the Solution Series homepage.
om Palmieri was in the hospital delivery room when his pager began buzzing repeatedly. The E-commerce site of client BMG Direct was brought to its knees by a 30% to 35% increase in traffic during the 1998 Christmas season, when a marketing campaign targeted a 15% increase. BMG Direct had recently outsourced the hosting, maintenance, and support of its high-traffic site to Quadrix Solutions Inc., and the crisis was sending red alerts across both companies. For four days, Palmieri, VP of technology at Quadrix, sat in the hospital room with his wife, balancing a newborn son and a notebook computer on his knees while he resolved the problems surrounding the upgrade.
Giving birth to its Web site has caused BMG Direct moments of pain as well as joy. After determining in 1997 that any site had to pay its own way from the beginning, BMG Direct looked closely at building a hosting infrastructure and using in-house staff. But the conclusion was that the skills and mind- set of its mainframe staff were not a good match for the frenzied maelstrom of E-commerce.
In response, BMG Direct hired Quadrix in July 1997. Its three-year mission was to improve responsiveness and handle the move to a more robust E-commerce architecture--fast. Although BMG Direct looked closely at costs and capabilities, VP Rose says the final selection was based on softer criteria. Drawing on her consulting background, Rose felt the chemistry was good between the two companies.
Go on to the next story, "Navigating Uncharted Waters."
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