B2what's next: DSW Helps the Little Guys
September 22, 2003

By James Klein, Larta VOX Editor

Jack was clearly outmatched when he climbed the beanstalk. The giant was bigger, stronger, and had tools Jack couldn't use. This is similar to the situation many small and medium-sized companies face competing against corporations that are bigger (more employees), stronger (more money), and have tools they traditionally don't use, such as outsourced IT services.

Many small businesses are finding, however, that what's good for the giant is good for Jack. Small businesses can especially benefit from outsourced services as they're frequently strapped for operating capital and require services that fall below the cost advantages and economies of scale provided by owning and managing their own systems. Fortunately for them, there are companies like Data Services Worldwide (DSW), which specialize in providing outsourced IT services to small and medium-sized companies.

DSW offers comprehensive and cost-effective solutions that were previously unavailable to most middle-market companies. At the premium end of the market, global solutions providers like IBM and EDS can effectively subcontract the operation of enterprise applications for Global 1000 companies, and in many cases take over their IT functions on an outsourced basis. In contrast, the "managed hosting" services traditionally available to the small and medium enterprise ("SME") market have largely consisted of co-location services offered by local ISPs and data centers with a high attrition rate, frequently using off-the-shelf hosting software. DSW bridges the gap by offering a premium full-service hosting solution at a price within reach of the SME market.

Business 2net ("B2n"), DSW's remote hosted network management service, eliminates the need for small and medium-sized companies to hire expensive IT staff, and buy and maintain costly equipment. DSW provides hardware, software, backup, security, managed facilities, network connections and a full range of IT services for a fixed monthly fee. The company claims its B2n services save customers up to 70% annually compared with the cost of acquiring and operating IT infrastructure and enterprise applications in-house.

Hundreds of organizations have chosen DSW as their "Total Solutions Partner", enabling these organizations to focus on their core competencies instead of worrying about their technical systems and networks.

Xdrive, Inc., a provider of hosted online storage services, had been using a global communications hosting facility and a third party monitoring company costing $80,000 per month. Now that Xdrive is using DSW's services, its hosting and monitoring costs have been reduced by 50%, a savings of approximately $500,000. "DSW has saved us money and allowed us to concentrate on what we do best," said Brett O'Brien, CEO of Xdrive. "In addition, our service has never been better."

Another customer, Accuride International, claims "DSW is saving us $250,000 per year. Migrating our financial applications over to DSW was probably one of the best things we've done in the past few years."

Suzanne Decker, CIO of Tri-Star Electronics, explained the benefits DSW has provided her company: "We have a small IT staff so we needed to outsource. Now we have experts available at all times."

The company's proprietary "B2n Portal" enables DSW personnel to manage customer sites and applications on an automated basis at a fraction of the time and cost of most SME corporate IT departments. DSW can remotely manage all aspects of LAN, WAN, MAN, Internet and Intranet application services. The Portal also serves as an information repository for customers, who can graphically monitor the performance, capacity and uptime of their systems, something internal IT departments often fail to demonstrate due to their limited resources.

Some middle market companies want the economic benefits of outsourcing their IT services, but are unwilling or unable to transfer their servers offsite. For those customers, DSW offers "B2n Remote", which provides remote monitoring and management of the customer's operating systems, databases, networks and security.

While its customer base includes Prudential, AOL Time Warner, Verizon, Creative Artists Agency, Baxter Healthcare and Litton Industries, the majority of DSW's accounts are middle market enterprises. A 2002 report by the Gartner Group projected that "By 2005, the SMB [small and medium business] market will account for 57% of total IT professional service purchases in the United States".

DSW has a history of helping small and medium-sized businesses. The company was started in 1971 by the current CEO's father, and has been a leading provider of IT managed services, consulting and products to Southern California middle-market companies ever since. DSW originally helped small businesses use mini-computers, and later adapted to changes in technology, linking computers into networks, migrating to the Internet, and distributing hardware and software for Sun Microsystems, Microsoft and Oracle. In 1999, in response to customer requests, DSW began initial development and commercial deployment of Business 2net.

The company soon realized the potential of Business 2net, and is seeking equity investment to help fund the expansion of its IT services business. The company plans to leverage existing relationships as a hardware and software reseller to help grow its managed services business. DSW has over 300 transactional customers with ongoing recurring sales and close to 1,000 active accounts it can call on with new service offerings.

The company also plans to form relationships with other hardware and software resellers to increase its IT services business. DSW is currently a member of a consortium of 13 regional IT service providers and integrators located throughout the U.S. The consortium consists of regional firms that have developed strong local practices, and will help DSW sell its managed services throughout the country.

DSW is being assisted in its capital-raising efforts by Fidelys, which provides specialized investment banking and corporate advisory services to middle-market companies.

"What I like about the company is its adaptability, the way it has changed repeatedly over the years and invested to build new business," said Rocky Springstead, Co-Founder and Managing Director of Fidelys, in a recent Los Angeles Times article.

"That's why I believe so strongly in their current strategy, using existing relationships and reaching out to other resellers to grow their services business," continued Springstead in another recent interview. "I believe that DSW has developed a sustainable and viable business model that will allow them to grow significantly over the next five years, reaching revenues in excess of $100 million."

For more information on DSW or Fidelys, please contact Rocky Springstead at 213 765-4832 or rspringstead@fidelys.net.

Return to this week's issue of VOX >