FRAMINGHAM (10/03/2003) - A plan unveiled by IBM Corp. this week may ultimately help make the location of a corporate data center largely irrelevant, even allowing for data centers that are outsourced offshore.
IBM has broadened its remote Virtual Server Services, which had been offered only on its zSeries servers, to include the rest of its eServer line -- iSeries, pSeries and xSeries servers -- with support for Windows, Unix and Linux.
The company is also adding applications to its on-demand computing services under an application service provider model. Officials said IBM had inked an agreement with Siebel Systems Inc. in San Mateo, Calif., to offer CRM services in this manner.
An IBM data center in Boulder, Colo., houses the systems, which users can access remotely on a pay-as-you-go basis. The service will gradually be expanded to other IBM facilities around the world, and U.S. companies could eventually have their day-to-day business applications residing on servers located in places such as India.
Mike Riegel, manager of IBM's e-business hosting services, said that outside of regulated industries such as health care and financial services, the use of offshore data centers can work.
"There is a lot of fear, uncertainty and doubt about cross-border delivery," said Riegel. "But when you really dig into the regulatory environment, there aren't many impediments to it."
Multinational companies run data centers all over the world. But the idea of turning part or all of a company's data center operations over to an offshore provider is in its infancy, according to offshore service providers and analysts.
Some companies are beginning to use offshore service providers to remotely manage and monitor their data centers in low-cost countries while keeping the hardware and data in North America and Europe. But most offshore users are like Lancaster, Pa.-based Armstrong World Industries Inc., which focuses its offshore operations on application development.
Armstrong, which has 59 plants in 14 countries, turned to an offshore developer to help it cut costs and get out of bankruptcy brought on by asbestos-related lawsuits.
Edison, N.J.-based Intelligroup Inc., which has an offshore development center in Hyderabad, India, is responsible for development and maintenance of Armstrong's SAP AG ERP system, said Mark Young, Armstrong's director of program management.
Young said the offshore arrangement has yielded cost savings through reduced head count and the flexibility to increase or decrease his resources as needed. He said he also looked at hardware outsourcing but opted instead for internal improvements, such as server consolidations, to reduce his costs.
Still, Young said he continues to review vendor outsourcing options, such as IBM's Virtual Server Services. "When you are trying to become financially stable, you are always looking for cost (reduction) opportunities," he said.
Paul Mercurio, CIO at Exxon Mobil Travel Guide LLC, a subsidiary of Exxon Mobil Corp. in Park Ridge, Ill., has been using IBM Virtual Server Services for the past year. They were initially offered to customers that wanted to port applications to IBM zSeries mainframes running Linux.
Mercurio, who uses the service for his company's Web production and publishing, said the cost is as much as 30 percent below any alternative. "The key thing from my perspective is . . . it's important that IBM keep this service fresh (and) new" as technology improvements are made, he said.
With respect to the location of services, Mercurio said it doesn't matter where a resource is. "What matters is that you have a path to the resource and that there is a sufficient amount of that resource available," he said.
Some Systems Administration Moving Offshore
Early adopters of offshore outsourcing of IT systems, as opposed to application development, are focusing on remote monitoring, database administration and other systems administration functions.
But analysts and offshore service providers say they aren't seeing firms relocating data center hardware offshore. Companies maintain that although such a move probably isn't worth the migration expense, they may use hardware located offshore through an outsourcing vendor.
"Moving the machine is really unnecessary," said Suresh Gupta, a consultant at Capco, an Antwerp, Belgium-based financial services consulting firm. He sees network monitoring functions going offshore as part of an "extended team" approach. For instance, a company in India could manage a network during overnight hours in the U.S.
But there are many elements affecting a decision to outsource infrastructure operations offshore, including network reliability, geopolitical concerns and security. It remains "more of a niche and still a slowly evolving process," said Richard Matlus, research director at Gartner Inc. in Stamford, Conn.
But offshore aside, infrastructure outsourcing is growing in the U.S., and offerings are expanding. For instance, Sun Microsystems Inc. last week said it had struck an agreement with Houston-based SchlumbergerSema, the IT services arm of Schlumberger Ltd., for outsourced, pay-as-you-go services. Schlumberger will use Sun servers to provide services targeted at the energy, finance, telecommunications and government sectors. The servers can be hosted at the customer's site or Schlumberger's data center.
While these data center services can be provided anywhere, "the barrier is the customer comfort to sending something offshore," said Ashif Dhanani, director of utility computing at Sun.
Kumar Mahadeva, CEO of Cognizant Technology Solutions Corp., an offshore services provider in Teaneck, N.J., said he's seeing business processes such as claims processing go overseas, resulting in the creation of offshore data centers to support those operations.
Andre Mendes, chief technology integration officer at Public Broadcasting Service in Alexandria, Va., said he believes that locating data centers anywhere in the world is becoming almost inevitable as technology improves. "The only bottlenecks left behind are geopolitical ones," he said.