Qwest expects the agreement, which is backed by revenue and volume commitments from both companies, to generate $260 million of incremental services revenue between itself and Loudcloud over the next five years. In addition, Qwest will transition the management of its business Internet site, Qwest.com, to Loudcloud.
Web hosting has yet to prove to be a profitable market. Loudcloud and a number of other Web-hosting companies have reported mounting losses this year. Loudcloud, which is set to announce its second-quarter earnings Wednesday, reported a $60.3 million net loss on revenue of $11.7 million in the first quarter, ended April 30.
A partnership with Qwest for data-center space could be Loudcloud's effort to avoid following in the footsteps of rival Exodus Communications, which observers believe may not survive much longer as an independent company. Exodus reported $583.4 million in losses in the second quarter, ended June 30, and has amassed $3.5 billion in debt in an effort to build a massive data-center infrastructure. Among the benefits of the Qwest arrangement, cited by Loudcloud's CEO and co-founder Ben Horowitz, is "to reduce the company's cost base."