As Exodus Stock Rises, So Do Customer Complaints

Despite the stock's 437% rise this year, customers are commenting on Exodus' poor network connections and customer service.
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SAN FRANCISCO -- One evening in late July, Web-hosting giant

Exodus

(EXDS)

failed to lead Nikesh Kalra to the promised land.

Kalra, general manager of streaming media company,

Streamvision

, was about to settle in and watch the rave his company was helping to Webcast for a client when a router operated by Exodus crashed. It was the client, not Exodus, who deployed a back-up system that saved the rave. And Streamvision received no payment for the Webcast.

"It was a mess," sighs Kalra, who says his efforts to contact support only made things worse. "I had to talk to 16 people, but I got nowhere. Everyone was very friendly and all, but nobody was really helpful." Though Kalra continues to keep six servers in an Exodus data center, he won't be locating any new equipment there. Instead, he's looking at

AboveNet

(ABOV)

and

Level 3

(LVLT)

.

"If I had to pick all over again, I probably wouldn't go with

Exodus," Kalra says.

Kalra isn't the only disgruntled Exodus client these days. More and more, customers of the Santa Clara, Calif., Web-hosting company are growing vocal in complaints. Five Exodus customers who were interviewed griped about its poor network connections and shabby customer service.

The litany of complaints is alarming given Exodus' image as the industry poster boy and the stock's relentless rise. Exodus is up 437% this year, compared with a 41% gain in the

TheStreet.com Internet Sector

index. Last week, when the stock hit its all-time high of 89 3/4, the company's market cap was worth $7.4 billion. Should larger companies grow disgruntled and veer away from Exodus, it could eat into the promise that has been priced into Exodus' stock.

Nancy Casey, portfolio manager with

Valhalla Capital Management

, says she is concerned that deteriorating service creates an opportunity for competitors. "Exodus is going to make everyone a lot of money, but it probably won't be a stock I hand down to my grandchildren," says Casey, who recently has been selling some of her Exodus stock.

Already there are signs that Exodus' relations with some high-profile clients are in jeopardy. Service problems are serious enough that they've generated high-level tensions between Exodus and online auctioneer

eBay

(EBAY) - Get Report

, one of Exodus' largest and most prominent customers, according to two people familiar with the situation.

In the past few weeks, eBay has been in talks with several Exodus competitors for a new contract to move a portion of its Web servers to a new vendor, the sources say. Exodus Chief Executive Ellen Hancock says its relationship with eBay is in good shape. eBay spokesman Kevin Pursglove declined to say whether it was mulling a move of its primary Web servers but says that a top priority is to figure out where to house a key backup system.

For its part, Exodus admits to having some issues, such as the quality of service of its call centers. "We are getting better at customer service all the time," Hancock says. "But we are still working on improving communications between ourselves and our customers."

Exodus is beefing up its sales and service staff, Hancock says, with help from purchases of service firm

Cohesive Technology

and security experts

Arca Systems

. Earlier this month, the company named

Andersen Consulting

alum William Yeack to head up its professional services division.

The company needs to move quickly to save its image as a top-notch Web expert. "We have worked with

Exodus, and our opinions of them were not all that great," says Mike Dalrymple, lead engineer of

vivid studios

, a leading Web development company. Although vivid hasn't cut off its business ties to Exodus, Dalrymple says that for Web-hosting and co-location services, he recommends

Digex

(DIGX)

and AboveNet to clients.

"Our clients didn't get what they were paying for, especially with customer service," he says.

Another former customer who asked not to be identified says Exodus' new facilities are hardly impressive. "It was ugly," says the source, a technology officer of a major streaming media company. "There was a layer of dust on the machines. There was no way I was going to put my machines in there."

These anecdotes are supported by a recent

Forrester Research

report on the Web-hosting business that said Exodus has a poor reputation for customer service. While the report said many Web-hosting companies have bad service reputations, the gripes pack an extra punch for Exodus, which has staked its reputation and a good portion of its business on providing world-class service.

But the most serious problem for Exodus, some customers say, is the quality of its Internet connections providing inferior Internet connectivity -- the core service of a Web hoster. Jeanne M. Schaaf, who authored the Forrester report, says the main problem is that Exodus hasn't built its own fiber optic network as rivals such as

MCI WorldCom's

(WCOM)

UUNET

and

Qwest

(QWST)

have.

Instead of laying its own fiber at back-breaking but efficient expense, Exodus buys its Internet connectivity through arrangements with more than 200 ISPs. With such arrangements, says Schaaf, you get what you pay for. "You're paying for peering because their traffic is basically one-way traffic," she says. "Exodus will be at a competitive disadvantage to hosters who actually own networks."

Hancock admits the company needs more bandwidth and is considering the purchase of more fiber for its external network that sends data from its data centers to surfers all over the Web. "We are in discussions," she says.

Not all Exodus investors are losing sleep over the company's increasing quality-control problems. "Investors take the risk of missing the forest for the trees," says Chris Bonavico, portfolio manager with

Transamerica Investment Services

. Before Bonavico loses faith in Exodus, he'll need to see two things: slowing growth in the hosting industry and a better competitor.

"I'm not seeing either one of those," he says. "If you have conviction in the management, then holding stocks for the long ride is almost always the right thing to do."

TheStreet.com is a customer of Exodus'.