IBM And BellSouth To Team On Hosting

An agreement between IBM and BellSouth may indicate a fundamental change in dynamics of the hosting market.

IBM and BellSouth on Wednesday unveiled plans to jointly deliver on-demand hosting services to business customers, focusing primarily on those in the Southeast. IBM will provide the services and BellSouth will handle the networking infrastructure.

The major difference for businesses is that they'll be able to buy new services--something BellSouth's customers have been seeking, says Mark Kaish, VP of data product management for BellSouth. The carrier now offers basic Web hosting, storage, and co-location for about 150 customers at two facilities, one in Miami and the other in Atlanta.

"We've had customers asking for more," Kaish says. They want more advanced storage capabilities, support for Linux and other operating systems, and rental financing programs that BellSouth didn't offer. "It came down to us trying to decide where to spend our next hour--on the hosting side or on the core network. In this day and age, we decided on the core network," he says.

Within two months, IBM will offer on-demand storage, Linux, and E-mail services. IBM also is considering voice applications, including IP telephony and contact centers, as well as on-demand video surveillance over the Internet for homeland security. BellSouth will retain ownership of the two data centers, and IBM will pay rent and will pay for the bandwidth connecting the centers to the Internet. Customers will continue to pay BellSouth directly for the connections between their offices and the new IBM E-business hosting centers.

IBM and BellSouth executives expect similar arrangements to follow in the hosting market, as many hosting providers struggle to gain market share and post profits. "We truly believe this is the model going forward," says Russell Doby, IBM Global Services' director of E-business hosting services, adding that IBM is engaged in similar discussions with other telecom companies. "The inherent waste in the current hosting model and no gain in market share would suggest it's time to reassess their strategy. Their expertise is in telco, ours is in hosting." By leveraging unused computing power and storage capacity among many customers, IBM can offer more than traditional hosting providers. Yet it doesn't have the infrastructure expertise that BellSouth or other telecom providers have.

By the end of the month, BellSouth plans to roll out a regional IP network based on multiprotocol label switching. By summer, customers will be able to access the data centers from anywhere in BellSouth's region using Gigabit Ethernet speeds. Currently, customers must be located in Atlanta or Miami to access the centers at the high speeds.

The deal also calls for IBM to host and manage BellSouth's Web-based applications. BellSouth outsources its core IT tasks to EDS, but Kaish doesn't rule out the possibility that it could shift some of that business to IBM's on-demand services.