Business News – Savvy Savvis Embarks on Expansion

Posted: 07/2001

Business News

Savvy Savvis Embarks on Expansion
By Fred Dawson

Savvis Communications Corp. (www.savvis.net) has dodged a nasty financial bullet just in time to allow it to embark on an aggressive channels expansion program in the value-added IP services arena.

At the heart of the Savvis strategy are new technology and advanced networking capabilities designed to extend the value proposition of a private network into the small to medium-sized business domain and, by extension, to afford channel partners opportunities to private-label advanced service offerings that have global reach. Costs of its network-based IP VPN services are typically 30 percent to 50 percent lower than the costs of traditional VPNs, the company says.

“Our own branding is important to us to a degree, but our mandate is really to provide the underlying technology and support for quality of service that allows other service providers to offer intelligent IP services that wouldn’t otherwise be available to them,” says Jack Finlayson, Savvis president and COO. “A reseller can use the Savvis infrastructure underneath these service offerings to give all its agents an opportunity to participate in our agent/reseller program, no matter where they are.”

Until recently, this strategy was at risk because Bridge Information Systems (www.mvision.com), the financial services company which purchased a majority stake in Savvis two years ago, had come on hard times and was forced to file for Chapter 11 bankruptcy protection. In the ensuing bidding for Bridge assets, a subsidiary of Reuters Group plc (www.reuters.com) won the right to acquire a major share of Bridge’s financial services operation and agreed to provide up to $45 million in debt financing to Savvis, starting with a $10-million infusion that transpired on May 15.

Further strengthening Savvis, which has been highly dependent on revenues from the IP services and transport it provides to Bridge, Reuters agreed to purchase $366 million worth of services to be provided by Savvis over the next five years to customers of the Bridge businesses that were acquired by Reuters. All told, Savvis is now delivering IP networking services to more than 4,700 financial institutions worldwide, including leading banks, brokerage firms and stock exchanges, officials say.

Citing recent quarterly financial results, Savvis chairman and CEO Rob McCormick notes, “While we exceeded analysts’ revenue and EPS [earnings per share] targets for the [first] quarter, we were especially pleased that non-Bridge revenue grew at such a rapid rate quarter over quarter [29 percent between from the fourth to the first quarter]. We expect non-Bridge revenue to continue to trend upward for the remainder of the year.”

One of the key elements of the value proposition Savvis brings to service providers and end users is its ability to provision IP VPNs and firewalls from a network-based platform supplied by Nortel Networks (www.nortelnetworks.com), greatly lowering the costs of private networking, Finlayson notes. This makes selling this service and the value-added services that go with the intelligent IP system, including network-based firewalls, much easier for SPs, not only from a pricing standpoint, but also with regard to the cost of making the sale.

“We started offering intelligent IP VPNs eight months ago and have sold about 225 such networks,” Finlayson says. “Eighty percent of those sales were made over the phone. In one case, a 100-site, fully managed VPN was sold that way.”

With a growing network of channel partners consisting of CLECs and even RBOCs and ISPs, including newly announced partners in Hong Kong and Latin America, Savvis is now extending its reach into the telecom agents market, says Matt Fanning, executive vice president for strategic development and business planning. “We’re just starting to get involved with agents,” he says. “It takes a lot of education to get them accustomed to the difference in our offering, since they’re hearing a lot about IP services and are accustomed to seeing hardware vendors trying to sell a lot of equipment into end-user premises to support those services.

“With our approach, it’s like offering [end users] a Centrex type of service rather than a PBX, because they don’t have to buy special hardware to support VPNs, firewalls and other services,” Fanning adds. “All they need is the single, low-cost IAD that’s required for our intelligent IP services. So you can sell the customer one service now, something as simple as Internet access, and with that you’ve put in the ability to upsell without added hardware costs.”

The Savvis backbone network, running IP over ATM, supports a wide range of access modes, including frame relay, dial-up, Ethernet and DSL, thereby eliminating any special requirements for making last-mile facilities compatible with the service capabilities. The ATM-based system, connecting over 18,000 end points in 144 cities around the world, supports four classes of service, including delay-intolerant market data and voice and video, at speeds ranging from analog and ISDN up to OC-12 (622 mbps), McCormick says.

“We typically work with several local carriers in the larger markets, looking for whether any of the competitive carriers have available what we’re looking for on net and then going to the incumbent if they don’t,” he adds. “Our typical customer uses connections between 128 and 256 [kps] to run the VPN.”

To further enhance its value proposition, Savvis has developed a proprietary “Intelligent Accelerator” for its network, which, based on the initial traffic pattern of a customer’s communication with another party, reconfigures all future traffic between those parties so as to maximize the distance the packets travel over Savvis’ backbone and eliminate unnecessary hops across other networks. “We’ve seen improvements [in rates of throughput] of 17 percent on average and, in some cases, the improvement is double,” says Tina Mayland, vice president of marketing for Savvis.