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ENRON BROADBAND SERVICES - Application service wholesaling Opportunities

ENRON BROADBAND SERVICES - Application service wholesaling Opportunities. March 6, 2000. Contents. Overview of Enron Corp. & EBS EBS business directions ASP market and opportunities for EBS Proposed Business Model How can EBS position itself in the ASP market?. Enron and EBS Background.

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ENRON BROADBAND SERVICES - Application service wholesaling Opportunities

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  1. ENRON BROADBAND SERVICES- Application service wholesalingOpportunities March 6, 2000

  2. Contents • Overview of Enron Corp. & EBS • EBS business directions • ASP market and opportunities for EBS • Proposed Business Model • How can EBS position itself in the ASP market?

  3. Enron and EBS Background Enron Corp (ENE) • #27 on Fortune 500 List, global company with $38B in revenue, $50+B in assets • 70% of share value derived from trading & service, leading market maker in energy related commodities Enron Broadband Services (EBS) • Wholly owned subsidiary of Enron Corporation • Global Fiber Optic, Pure IP, Distributed Server Network. • EBS debut in January 2000 added up to 27% / $15 increase in ENE Stock Price • EBS will become a core business of Enron and a key driver of the stock price

  4. EBS Business Directions 2000 Enron Intelligence Network / BOS Deploy the Most Open, Efficient Network with Broad Connectivity BandwidthTrading Be the World’s Largest Buyer and Seller of Bandwidth ContentServices Be the World’s Largest Provider of Premium Broadband Delivery Services Enron Intelligence Network (excerpt from presentation to analysts, January 2000)

  5. EBS Business Prospects • Enron’s Core Competence lies in Market Intermediation • Being a leading energy company, Enron has enormous success in trading and risk management of energy related commodities • Knowledge and thus success in gas market intermediation results from our core participation in gas asset management and operation • EBS decided to establish and operate global broadband business, providing: Content Services - Media Cast • Offer high quality platform for rich media • Webcast market size was $25 million in 1999; expecting only $450 million in 2003 • Established players like Digital Island and Akamai took 1st mover advantages Enron Intelligence Network / Broadband Operating System • EIN/BOS as the intelligent delivery competency behind our bandwidth capacity • Analysts predict oversupply and commoditization of bandwidth • Bandwidth charges are expected to decrease substantially Thus...

  6. ERP SAP CRM Siebel e-commerce BroadVision e-procurement Ariba Data-warehousing / Business Intelligence Oracle E-mail messagingMicrosoft Faster time to market Outsourcing reduces O&M Access to scarce IT expert Deep application expertise Cost Variabilization: better cost control Emerging ASP Market ASP Applications ASP Advantages Source: Internet Research Group

  7. Emerging Managed Application Services will create opportunities for EBS • ASP market will be billions in addition to MediaCast • ASPs will consume high bandwidth - fill our pipes! • EBS will move up the value chain to high margin biz • ASP is logical extension of EBS Network • EBS is almost an ASP • Current relationships with ISPs put us in the sweet spot

  8. ASP market will be billions compare to MediaCast • eCommerce and CRM has the largest expected market • 2003 market of eCommerce application hosting alone: $4.7 billion • ASPs will consume high bandwidth - vertical integration into ASP can secure bandwidth demand *Others include AppHosting for HR, Finance, Manufacturing and Logistics, Supply Chain, Product Development and Industry-specific Source: Forrester Research

  9. Example VAS 1998 U.S. market revenues $ Billions Expected CAGR % Industry Specific Services e.g. SABRE • Horizontal Services • IP communication security • Managed Application Services 0.0280 0.31 104 0.38 89 2.4 18 22.0 12 EIN/BOS Increase in Value Added • Hosting Services • Application hosting • Website hosting Logical Extension • Network management and integration • Managed network services • System Integration EIN/BOS Bandwidth Support quasi-commodity EBS will move up the value chain to high margin biz • Huge potential value-added market • Sustainable advantages clearly in high value-added services • EBS can leverage our premium backbone to become an ASP Source: Mckinsey & Co

  10. ASP is a logical extension of EBS Network • ASP is not a new initiative among network providers • Managed Application Services • Qwest Cyber.Solutions, AT&T Alliances Program • Web and Application Hosting • UUNet, GTE Internetworking,Digital Island, Qwest, AT&T, PSINet, etc. • EBS is almost an ASP • High QoS • Security: Private Network, CPE in Cities and ISP POPs • Availability: High bandwidth capacity, no single point of failure (end of March 2000) • Redundancy: Multiple paths between content/data source & end user • Scalability: 200,000 stream simultaneously • Infrastructure in Place • Agnostic platform • Global Reach: 18000 miles fiber optic (end of 2000) • Storage & caching (end of March 2000) • BOS APIs are designed to enable ASP operation

  11. Cmetric Easystreet Electric Lightwave Epoch Internet Firstworld Flash.net GST GTE internetworking InterNap Level 3 Netrail NorthPoint OrcoNet PDQ.net RCN RMI.Net showdigital TeleCommute Solutions Verio Villagenet Distribution alliances with ISPs put us into the sweet spot • Relationship with leading ISPs • representing over 500 PoPs with direct access to 24 Million Desktops • The industrial trend ofISPs moving towards ASPs will facilitate our role as ASP wholesaler

  12. EBS: From Network Provider to Application Services Enabler Key Elements of Application Hosting Complex Web Hosting Independent Application Vendors Application Hosting EBS IT Integrators Networking/ Infrastructure Source: Internet Research Group

  13. Hosting Market Shakeout Full-Service Hosting Managed Hosting • All collocation services • Custom server management • back-end network integration • Systems & apps monitor • for • eCommerce a priority • ample in-house integration skills • e.g. Land’s End • All managed services • System Integration • Consulting, design, configuration • for • eCommerce laggard • Complex legacy environment • e.g. Amtrak, GM EDS IBM EMC GTE Digex IBM Frontier GC NaviSite Sprint Qwest / Icon UUNet GTE Above -Net IBM AT&T CALL Frontier GC Sprint Simple Hosting Collocation Hosting Sprint Digital Island PSINet UUNet UUNet • Share or dedicated servers • Templated or basic eCommerce package • Box and systems monitoring • for • Brand site or basic eCommerce • Little apps integration • e.g Century 21 CONSIDER • Racks,security, redundant power • Bandwidth, network redundancy • Box monitoring, remote admin. tools • for • Trailblazing eCommerce • Lots of technology experience and skills • e.g eBay, Yahoo! EBS Concentric Exodus CAREFUL (who should you call for RFP?) Source: Forrester Research

  14. So ASP is the direction, now what? • SWOT Analysis & Implications • Strengths • Network Infrastructure • Wholesaling and Trading • ISP relationships • Financial resources & expertise • Outsource experience in EES • LEVERAGE ISP RELATIONSHIP • UTILIZE EES TALENT • BE WHOLESALE • Weaknesses • Software application knowledge • IT consulting and management • Centralized data center • User management • ISV relationships • STRATEGIC ALLIANCES, OR BETTER YET, ACQUISITON • Opportunities • $7.6 billion (2002) ASP market* • ASP data traffic to fill our pipe • Higher margin business • Sustainable competitive advantages • MOVE UP THE VALUE CHAIN • Threats • AT&T, Qwest at full services side • Digital Island, Akamai etc. at low end • Catch-up games • EBS biz being commoditized • MOVE FAST! ACQUISITION * J.P. Morgan estimate

  15. Business Plan • Partner with leading Application Vendors Get the Content • Become the preferred backbone infrastructure for leading software vendors • CRM: Siebel eCommerce: Ariba, VerticalNet, BroadVision • Partner with Web Consultants & System Integrators Get the Expertise • e.g. Qwest Cyber.Solutions = Qwest + KPMG, named as the first participant in MSFT’s commercial Network Service Provider • Partner with USWeb/CKS • USWeb/CKS& MSFT form iFrame, standardized architecture for e-business solution • Possible Partnership with PWC • Rumors that Microsoft will inject equity into PWC, expert in PeopleSoft • Partner with Prominent Data Management Co Get the Storage • StorageTek, OTG Software • Expand relationship with leading ISPs Get the Distribution • Take advantage of the general shift of ISPs towards ASPs

  16. ISP/ASP ISP/ASP ISP/ASP Major ASP Proposed EBS Position - Application Services Wholesale System Integrators / Web Consultants Network Services Alliances • EBS alliances provide: • Application hosting • Complex data crunching • ASP jump-start platform for ISP • centralized ISV relationship • industry-specific application customization, packaging • Application update • B2B exchange platform Client for B2B platform Data Warehouse / Storage Experts EBS Network Services ISV relation- ship Industrial solution package Application management fee Data mining & reporting Bandwidth usage B2B Client • ISP responsibilities: • user management • Application hosting

  17. Value Proposition • Network management • Bandwidth capacity • Data Intelligence • Industrial expertise • User relationship • Billing & miscoperation management • Edge storage Strengths: Corporate End User ISVs EBS alliances ISP/ASPs • User management • Application hosting • Billing and support • Caching and edge contentmanagement • Application hosting with complex data • ASP jump-start platform for ISP • Centralized ISV relationship • Industry-specific customization, packaging • Application update • B2B exchange platform Responsibilities:

  18. Revenue Model Revenue Model • Wholesale application services Service fee from ISP/ASP Revenue split on user service fee Revenue split on user service fee • Vertical B2B portal B2B commission Advertising revenue Business Model • Wholesale application services Application aggregation and update Industry specific application customization Network services • Vertical B2B portal, delivering specific assembled solutions for each industry J.P. Morgan predicts that ASP business will • move to open platform for the delivery of applications across multiple enterprises • segmentation of applications across vertical market • have new level of B2B functionality and interaction which iscurrently not achievable

  19. Who should we go after? • Target Marketing • Our immediate market is ISPs that want to be ASPs • Targeted user segment: Medium Size Business • Small businesses are well served by packaged software • Large businesses have IT infrastructure in place and can afford customization • Provide full spectrum of application services to capture each vertical market • i.e from web hosting to CRM • Focus on outward facing applications market • Industry Segmentest. 2003 revnue • Priority list: 1) eCommerce $4.7 billion • 2) CRM $2.5 billion • 3) Manufacturing and logistics $1.7 billion

  20. Appendix

  21. Deal Structure • Web Application Vendors • License software applications • EBS • Provide secure, reliable and scalable bandwidth for data traffic • Wholesale application hosting: Application Mall • Facilitate B2B communication by enabling business clients to share common applications • EBS provides reach to practically everyone on the Public Internet as well as ePowered ISP customers through our relationship with leading ISPs • IT Integrator and web consultants • System integration, training, consulting and maintenance • ISP Partners • Redistribution of application • Customer relationship management

  22. Partner Benefits • Enron • Largest buyer and seller of bandwidth • Wholesale application hosting: Application Mall • Premium for value-added services • Application Vendor • Licensing fee • Higher share of software/application market • ISP • Application hosting fee • Customer management fee • IT integrator • Consulting fee/revenue sharing

  23. Data centers Three security traps prior to data center with key cards, codes, biometric scanners Networks at entry; surveillance cameras throughout with seven days of recorded tapes. Fully redundant internal networks from servers to border routers with 100 Mbps switched Ethernet. Locked cages, cabinets, and racks with keys distributed at login; fencing through ceiling and floor; bunkered or vault facilities available. Data centers on network POPs with direct peering to major tier1 carriers. Redundant power to cabinets served by multiple generators from two separate power grids, backed by UPS and diesel. Data centers connected at OC3, minimum one hop away. Dual gas-based, fire-suppression systems. Hosting Vendor Checklist Source: Forrester Research

  24. Operations NT and Unix support, 24x7. Customer service Monitoring servers, network, apps, and Web activity including outside-in Assigned technical team from RFP through installation, operation, and trouble monitoring of site availability. handling, 24x7. Load balancing, mirroring, and caching capabilities. Server SLAs with proactive, money-back guarantees, including: 100% uptime, 99.99% network availability, less than 1% packet loss, 80 millisecond or less turnaround. Server lock downs, firewalls, intrusion detection, and security auditing. Installation SLAs of less than 10 days, restoration within 4 hours, trouble reporting within 10 minutes. eCommerce applications including storefront, transaction, authorization, and fulfillment applications. Real-time, Web-based customer reporting systems. Server configurations, back-end network and legacy database integration. Daily incremental backup and full weekly off-site storage in fireproof vaults. Hosting Vendor Checklist cont. Source: Forrester Research

  25. Qwest Cyber.Solutions “In June 1999, Qwest and KPMG LLP ... formed a joint venture called Qwest Cyber.Solutions LLC, to provide Internet-based end-to-end application service provider, application hosting, and application management services. … Qwest contributed approximately $60.0 million consisting of cash and other assets, and owns a 51% stake in the venture.” - Qwest Press Release • Industry experts cheer about Qwest’s move in AppHosting • “ Whether users want simple Web sites or complex systems integration, Qwest has an answer. The IXC has brand-new 50,000-square-foot data centers with high-bandwidth IP pipes and global connectivity to meet any collo requirement. Its ICON professional services group -- coupled with its newly announced partnerships with SAP, HP, and KPMG -- position Qwest to address complex apps and legacy integration, too.” • - “Users’ Guide to Hosting”, Forrester Research Qwest ASP Strtucture • ISV partners: Microsoft, SAP, Siebel, Oracle, PeopleSoft, Ariba • 6 Data centers - storage • 3 Competency centers - consultants

  26. Dilemma: Do we need to own central data storage? • Many ASP players have put millions of dollars on data centers to maintain high-performance, highly reliable access to data • Intel • Corio: alliances with Concentric and Exodus • Since EBS is planning to be the application wholesaler, should we: • assume a pure intermediation role and let ISPs store their own applications & data? • build one data center to store and push applications & data?

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