WBC is an upcoming start up company trying to provide outsourced billing operations to other Internet companies and has unique needs for its infrastructure facility. It is imperative that it chooses a hosting provider that matches with the business needs of the company. Since the company is a start up with a high burn rate, there is very less margin for IT infrastructure glitches. This report analyses three providers and provides recommendations on which of the three to select as a hosting provider. Analysis There are five criteria to analyze the requirements of WBC according to their business model.
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These are: Financial implications on WBC, Financial stability of hosting provider, Reliability, Design control, Security (building and IT both), Space offering. Financial stability of hosting provider The hosting providers are not equal financially. Provider 3 is the most financially stable, although its parent may decide to divest it at any time. We further conclude from the case exhibits that Provider 1 and Provider 2 are not in the best financial shape considering the account profit structure and financial profile.
Never the less, we consider the hosting providers to be real assets that may easily be divested and managed by another effective company. All three firms have the same underlying risks, although in different ways – one provider a new investment and the other providers poor investments (assumed negative returns). Therefore, other strategic criteria should be the main focus. Financial implications on WBC WBC had a 16 million dollar cash balance but its burn rate is $550,000 per month, and soon to be $700,000 per month. WBC has approximately twenty-three months of cash to run until it will need another infusion (revenue or investment).
In order to understand how provider choice will affect WBC a financial analysis was run. As a process, first, we thought about the incremental burning rate and the initial IT investment for each provider. Second we compared each figure to help decide the best hosting provider. And finally the validity of adopting this investment is considered. Table A demonstrates how we computed the analysis by category. As the total initial investment, we add set-up cost for space and for connectivity. All of set-up costs don’t look that critical in deciding whether to take this investment.
Provider 1 is offering the least amount of 8 thousand dollar for this initial set-up cost. The incremental operating costs added to the old burn rate do not have a significant impact in our provider decision choice. Marginal operating cost after the investment is 12 thousand dollar, the least in provider 3 by 44. 29% of the highest figure of provider 2 in total and by 66. 58% per square foot. Selecting provider three offers more operating cash than the other choices — 0. 41 months worth, which is increased from the beginning balance before IT investment. And the difference between the provider 2 and 3 is only 0. 3 month.
We think this difference of zero cash timing is not critical to affect the decision-making procedure. In sum, the initial investment and incremental burn rate is not changed critically after it takes the IT investment option. And each number in this financial analysis might not give any critical decision making points to choose one hosting company. Reliability WBC’s business model requires that their IT infrastructure be extremely reliable. This requirement translates to reliability in both power and connectivity. As the billing service providers for a number of Internet companies, WBC’s systems need to be up and running 24/7/365.
This is especially important in the first few days of its operations when any down time will be perceived very negatively by its clients and hence will not attract new business. Moreover WBC needs an experienced hosting provider, as its own systems have not been deployed in a production environment yet. It also needs a provider that can fix problems in less time than others (should they arise at all). Provider 2 has the most experience out of the three as a hosting provider. It has a dedicated facility that has processes in place for ensuring constant connectivity.