Is the Customer Always Right? Not at Internap

Data center providers are usually loathe to get in public disputes with customers, as it has a way of converting  them into former customers. There’s been a doozy of a public spat this week involving dueling finger-pointing between Internap Network Services (INAP) and Ooma Inc. At issue is a network outage on Monday that disrupted service for Ooma’s VoIP customers and prompted an unflattering writeup on TechCrunch,

Ooma chief marketing officer Rich Buchanan used his Twitter feed to blame Internap for the problems.”Ooma issues were linked to an outage at Internap, Buchanan wrote. “It also affected RIM, Google, Yahoo, Blue Cross, TM, Verizon, and others.”

When media reports began citing Internap, company spokeswoman Debra Forrester denied that Internap had any downtime, telling Betanews and the Business Times that the problems must be on Ooma’s network.

Internap Cuts Costs, Lays Off 45

Internap Network Services (INAP) said today that it will lay off 45 employees, or about 10 percent of its workforce. The job cuts are focused in back-office staff functions, but also include “the elimination of certain senior management positions.” Internap, which specializes in colocation and Internet routing services, says the move will save approximately $5 million in annualized operating expenses. The company expects to take a one-time restructuring charge of about $1.2 million, most of which will be recorded in the first quarter of 2009.

The move comes just two weeks after a leadership change in which Eric Cooney took the reins as president and CEO. “These actions simplify our organization and enable us to focus and invest in our core competencies including: customer support, engineering, and sales,” said Cooney. “By acting decisively, we better prepare the company to manage through a tough economy, improve results and increase value for customers and shareholders.”

Internap Opens New Boston Data Center

Internap Network Services (INAP) has opened 15,000 square feet of data center space at 50 Inner Belt Rd. in Somerville, Mass. The expansion is the first phase of growth in the new 45,000 square foot facility, which is adjacent to Internap’s first Boston market data center.   

The new data center opened with an anchor customer in online backup provider Carbonite Inc., which has tripled in both revenue and subscribers over the last year. “For Carbonite, our data center is mission critical to the service we deliver for our customers,” said Keith Cooper, president of Carbonite. “We conducted a thorough evaluation of the data center colocation market and found that Internap not only had a premier physical facility with state of the art security, power and network connectivity, but also could handle our rapid growth plans both here and in other geographies.”

Internap Takes $99 Million Charge on CDN Assets

Internap Network Services (INAP) will take a $99.7 million charge to earnings to reflect the decreased value of its content delivery network (CDN), the company said Wednesday in a filing with the Securities and Exchange Commission. The charge reflects a sharp reduction in the “goodwill” value of the CDN operations Internap purchased in its $217 million acquisition of VitalStream in early 2007.

The writedown will be applied to earnings for the quarter ended Sept. 30, which Internap will announce on Nov. 6. Shares of Internap closed at $2.50 Wednesday, down 19 cents (7 percent) in trading on the NASDAQ exchange.

Internap noted that the non-cash charge “will have no impact on the company’s current cash balance or future cash expenditures, and will not result in a violation in any covenants of any of its debt instruments.”

Internap Amends Credit Agreement

Internap Network Services (INAP) has amended its credit agreement with Bank of America to “simplify its capital structure, add additional flexibility and improve its liquidity position,” the company said Monday. The agreement gives the company more time to repay the loan, while adding a requirement that the company maintain a cash balance of $10 million. Internap also said that it has expanded its presence in several European markets.

In its agreement with Bank of America, Internap (INAP) consolidated a two-tier agreement into a single revolving loan. Under the amended credit facility, Internap will convert its existing $20 million term loan balance and outstanding letters of credit with Bank of America into a $35 million revolving loan. The agreement extends repayment terms from quarterly payments that were to begin in the third quarter to a single principal repayment due in 2011. Additional details are available in the SEC filing.

“I am pleased that Bank of America has the confidence in our business plan to provide Internap with this additional financial flexibility and capacity,” said George Kilguss, chief financial officer of Internap. “We continue to be well-positioned in growing markets and are focused on providing network and hosting services to run business critical Web sites with 100% reliability.”

Internap, BitGravity Boosted by Humor Sites

Infrastructure is no laughing matter. But humor is huge online, and two growing online comedy franchises have expanded their delivery infrastructure this week:

• National Lampoon (NLN) said today that it will run its National Lampoon Humor Network and ad services on managed servers from Internap Network Services (INAP). “We are aggressively expanding our online presence and properties as the top humor destinations on the Web and Internap is helping us evolve with their combined expertise in Content Delivery Networks (CDN), IP, colocation, managed services and professional services,” said Zach Posner, vice president of corporate development for National Lampoon.
• BitGravity said it will provide high-definition object and video delivery for the CollegeHumor.com website. “CollegeHumor has a rapidly growing fan base and BitGravity’s highly scalable platform is exactly what we needed to deliver the highest quality video and user experience,” said Kunal Shah, VP of Technology at CollegeHumor.

More Views on Internap’s CDN Business

In this morning’s roundup on the content delivery network (CDN) sector, we linked a post from Contentinople speculating that Internap may eventually write off its struggling CDN business. This post has sparked some additional discussion from CDN-focused bloggers, including Rob Powell from Telecom Ramblings:

From a strategic standpoint, a CDN product has always made sense alongside Internap’s high end blended transit and colocation. That’s why they were reselling Akamai’s services before this debacle even started - their customer base really does have interest in CDN services. What Internap has failed at (so far) is execution, not strategy. They have to convince both themselves and their customers that they know how to run a CDN, else they need to sell out to someone who can.

Paolo Gorgo from Nortia Research offers a different take:

What I slightly disagree on is that it was only lack of execution. Internap put all its strategic focus on CDN. If you just read their latest annual report, you’ll still notice CDN is mentioned twice as much as the other business segments… That to me was choosing the WRONG strategy for the Company - which worries me even more than suffering an integration problem or having inherited a bad customer base.

Paolo says the company’s colocation business was “kind of put on hold” as a result. Dan Rayburn also adds his thoughts. See our Internap Channel for more background on the company.

Internap Shares Slide 35 Percent

Shares of Internap (INAP) are being hammered this morning on Wall Street after the company reported disappointing earnings and lowered its revenue guidance for the remainder of the year. Internap was trading down 35 percent at $2.82 early Wednesday, down $1.57 from Tuesday’s close.

Internap continued to feel the effects of performance problems connected with former VitalStream customers. The company said it “determined that approximately $3 million of our accounts receivable balances in the quarter were doubtful of collection” and took a charge to earnings for that amount. Internap also projected weaker CDN growth and said that trend, along with the increased loss allowance, prompted it to lower its revenue guidance for the full year 2008.

“In CDN, order flow and sales conversions is weaker than we expected for the second quarter and the full year,” said Internap CFO George Kilguss. “We believe some of this weakness is attributable to a difficult economy as we have seen increased competition and delayed purchase decisions for certain types of advertising dependent content delivery applications.”