eRescue 911! Hardware Companies May Prosper From Site Outages

Recent site crashes promise revenue for companies that supply backup equipment and recovery services.
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E-commerce companies are growing faster than one of James' giant peaches. But as they race ahead to establish beachheads, many of these new hot online businesses such as

eBay

(EBAY) - Get Report

,

Amazon.com

(AMZN) - Get Report

and

Schwab

(SCH)

are finding that success means never having to admit you are down.

Just ask eBay. The popular online auctioneer suffered an embarrassing 22-hour downtime on June 10 and 11. The stock was pummeled, losing nearly 50 points over two turbulent days.

A humbled eBay now says it has learned its lesson. "We now know that we are a substantial player in an exploding field," says an eBay spokesman. "It may happen again, but it will never last nearly that long."

The moral for all e-commerce companies is that you can never have enough workstations and servers. Which is good news for hardware giants

IBM

(IBM) - Get Report

,

EMC

(EMC)

and

Sun

(SUNW) - Get Report

, the three big e-business tugboats that are beginning to see substantial benefits.

Spending on Internet-Related Services Booms

*Estimated. Source: International Data

All three offer business recovery "S.W.A.T. teams" to cover breakdowns and outages. Sun, for example, sent a team of 50 technicians in to fix eBay's software problem. "We need to improve our relationship with eBay and a number of other sites so these outages are much shorter," says Doug van Aman, Sun's director of public relations for computer systems.

eBay had another three-hour outage last week. But Van Aman says other e-commerce sites that rely on Sun equipment, including

J. Crew

,

CBS SportsLine

and

Bloomberg.com

have had no outages. Yet

E*Trade

(EGRP)

suffered a

bad outage this past February.

Last week, Schwab

(SCH)

and IBM signed a deal to jointly develop load-shifting technology for the online brokerage industry. While most of Schwab's Web applications run on Sun SPARC servers, the time-sensitive trading system runs on seven mainframes and three backup mainframes in two locations in Phoenix. If one of them goes down, notes Scott Brooks in IBM's server group, the other one will automatically pick up the slack through a system called

Geographically Dispersed Parallel Sysplexing

.

The cost of getting enough hardware and software to run a Web site may appear prohibitive to a fledgling business, but the alternative can be much worse. eBay, for example, said second-quarter revenue would be about $3 million to $5 million lower due to the 22-hour outage. However, its valuation fell by nearly $6 billion. "When e-companies realize how much money they can lose when their site goes down, they will spend a lot more for the reliability of an IBM over the long term," says David Takata, an analyst at

Gruntal

. Takata has a buy on EMC and a hold on IBM. Gruntal has performed no IBM or EMC underwriting.

Compaq

(CPQ)

,

Hewlett-Packard

(HWP)

and

Dell

(DELL) - Get Report

supply the servers, workstations and other back-end equipment these e-commerce companies need.

Onsale

(ONSL)

, another online auction site, says it hosts its own site using Dell PC servers and

Microsoft

(MSFT) - Get Report

Windows NT.

But for most sites, the scale and reliability offered by Sun or IBM is a deciding factor, says Eric Klein, an analyst at tech consultant

The Yankee Group

.

IBM created a special unit out of its business recovery unit (a subset of IBM's Global Services group) to deal with emergencies. The unit had a baptism by fire during last September's

Hurricane Georges

.

Gillette

(G) - Get Report

runs a data processing center in Puerto Rico that runs its intranet network to place invoice orders online. Fearing the havoc that Georges could unleash, Mike Solter, solutions manager for IBM's e-business recovery unit, says Big Blue assembled a war room in Sterling Forest, N.Y., to fortify Gillette's online capabilities. Georges did devastate the Caribbean, but Gillette's e-commerce operations didn't miss a beat. Adds Solter: "Now we mobilize a service delivery team during major disasters, kind of like a S.W.A.T. team to plan recoveries."