Hatching An Application

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Hatching An Application
By Beth Ellyn Rosenthal, Editor

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nest w/money & egg In 1991 Gideon Montel and Amir Lev worked on a kibbutz in Israel. Working in the chicken coop, they hatched the idea of writing a client-server based email program. Acting as a mother hen, they began recruiting the technical professionals they needed to make this dream a reality. Since every youth in Israel must serve in the Army, which relies on sophisticated military intelligence and technology to survive, Israel has a wealth of technically skilled young people. The two founders of Commtouch, now a Mountain View, California email and messaging outsourcing provider, egged their friends on to join their cause.

The plans they laid produced Prontomail. Six year later, when the Web was becoming a de rigueur business tool, the company switched its focus to Web-based email. It began its outsourcing campaign in 1999.

Outsourcing may turn out to be the golden egg for Commtouch. "Dotcoms need email programs for customer acquisition, customer retention and on-line revenue generation," says Rip Gerber, chief strategy officer and head of the marketing department for Commtouch. Consequently, the market for email outsourcing "is exploding."

Gerber says the company's revenues totaled $300,000 in 1998. Last year they reached $8 million. The number of employees has grown from 20 to 450. Commtouch went public in July.

Currently Commtouch is hosting 18 million mailboxes and averages 500,000 messages a month. The company, which has 1,000 servers around the globe, is installing its architecture in data centers for companies like Intel and Exodus.

Business Email Monopolizes Outsourcing Market

Business email is beginning to monopolize the outsourcing market, Gerber notices. Companies like Bangkok.com want Commtouch to become their email engine so they can acquire the latest technology and not foot the cost of providing the uptime they require.

Gerber says when he makes a sales presentation, he never encounters an IT manager who is happy with the in-house email program. Many are stuck on old platforms. They can not find technical support or talent to maintain these legacy systems. And they don't have the bandwidth that their firm really needs to compete. Instead of focusing on these technical issues, they prefer to outsource this function to a supplier that can build them a best of breed solution.

There's clearly a reduction in the cost of ownership. Gerber says on average it costs companies $300 per employee per year to outsource the email function to Commtouch. His buyers tell him most in-house email systems cost them $2,000 per employee annually.

Outsourcing email to a specialists gives buyers access to better levels of service, continues Gerber. Commtouch guarantees in its service level agreements (SLA) that its uptime will be 99.9 percent every month. Gerber says his buyers tell him their internal systems run about 93 percent of the time. He says operations managers find outsourcing attractive. "One of the best ways to lose your job is to have the in-house email system always go down," he notes.

The supplier doesn't have a bonus program attached to its SLAs "because you can't get 100 percent," Gerber notes. However, the company will return a portion of the fee for non-delivery. "So far, we have never had to do that," he reports. This reliability is a hot button for commercial buyers.
He also notes that sometimes email systems go down because of a change order the customer requested. Or, the customer has a problem with its hosting facility. "We can't control that," he points out.

Security is a Concern

And he doesn't have to tell his buyers how quickly technology is changing. Today email is moving into the center of business operations. Companies can't afford to be behind in their email technology. Gerber says they chose to outsource so they don't have to keep up and don't have to worry about integrating the new pieces.

Another major consideration is security. Gerber says companies "are wondering how a student in the Philippines can cause a virus and take out billions in the economy." Commtouch's values its security measures to shield its customers from these kinds of attacks.

Finally, Commtouch's buyers are having a difficult time finding the personnel to run their in-house email systems. "They want their technology staffs to focus on their core business strategies," says Gerber. Commtouch, on the other hand, has 200 engineers "who do nothing but email messaging," says Gerber.

Gerber believes a successful outsourcing relationship must be a true partnership. And partnerships are built on clear communications. "We are very honest with our customers," says Gerber. "If we can't do something, we tell them. And when we promise something, we tell the customer exactly when we can do it." Gerber adds buyers must understand what they need to do and then follow through on their end if the outsourcing arrangement is to work successfully.

Customer Satisfaction Surveys

Commtouch has hired Deloitte and Touche to conduct a survey of its customers to track their satisfaction with the supplier's service. Sample questions include:

What features do you like?
If you could tell the CEO of Commtouch something about our service, what would it be?
What is your perception of our uptime? Did that meet your expectations? If not, tell us about the gap.
Gerber says this survey helps Commtouch make strategic decisions about products and strategies. The company also uses the responses to help manage its outsourcing relationships.

Lessons from the Outsourcing Primer:

Outsourcing email lowers the cost of providing email to employees. Commtouch lowers annual costs from $2,000 to $3000 per employee.
Companies are becoming the biggest proponents for outsourcing email.
Uptime improves when you outsource.
Outsourcing allows buyers to enjoy the latest in technology.
Communication is the key to outsourcing success.

Publish Date: November 2000

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