Servervault Case

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ServerVault Case

Servervault is a company in the hosting industry located in the United States which has been in operation since December 1999. A hosting company provides its customers with physical space for servers and supporting services. Servervault chooses only to operate in the managed hosting section which gives more value-added services to customers. ServerVault attracts Internet-reliant and security-savvy customers. It also provides end-to-end solutions to customers. Servervault differentiates itself from competitors by offering high level of security protection. It also has enough bandwidth and power supply to ensure the Internet access is always available. Servervault has three sources of revenue: one-time setup fees for new customers, monthly hosting fees and fees for additional value-added services. Although the variable cost of serving an additional customer is relatively low, it requires large funds to build facilities upfront. Recently, the president/CEO and CFO want to raise some capital for its expansion. The potential investors want to learn more about ServerVault’s projected cash needs to make the investment decision. Macroeconomic analysis

Economic background
As it can be seen from Appendix A(1), the NASDAQ composite peaked at 5048.62 in March 2000 before dropped dramatically to 3205.11 in April. The major contributor to the loss is the internet bubble. The increasing stock prices over the last few years made some investors too confident in IT companies. However, the collapse of the bubble took place in 2000, when a lot of IT companies failed. As a result, the NASDAQ composite witnesses a huge loss in the stock market. Hence, it is a good opportunity for ServerVault to get more market share. On the other hand, Appendix A(2) illustrates that the US GDP has kept growing during the last six years, which suggests that the loss may only occur in the IT sector. The growth in GDP brings more business capital spending. (Please see Appendix A(3)). Some of these capital spending may be used to hire third parties to strengthen firms’ IT departments. Therefore, it is a good news for ServerVault since it may have more customers in the future. Social background

An analysis in social background will help ServerVault to determine what customer needs. The number of internet users worldwide was only about 30 million in 1995, but it increases to around 280 million in 2000. Please see Appendix B. The popularity of internet offers businesses a new way to advertise and sell their products. Nowadays, people like to shop online so that more and more companies need reliable internet servers to handle complex transactions. Since ServerVault specializes in this area, the increase in the number of internet users is definitely good. Microeconomic analysis

Competitors
Competitors are a major threat to the business. Therefore, to gain some insights of competitors’ businesses can help ServerVault to determine where it stands in relation to the industry. According to the information from the Bureau of Labor Statistics, ServerVault faced intensive competition in 2000, as the number of establishments in the data processing and web hosting industry was approximately 28000. However, that number decreases by 46% to around 15000 in late 2011. (Appendix C(1)). As the demand for web hosting services has kept growing, during the 10-year period, some firms in the industry become very large while a lot of them failed. In 2000, the leaders in the managed section of the web hosting industry were Digex, IMB and Data Return. The major service provided by Digex is largely the same with the one offered by ServerVault. However, Digex also has revenues from value-added services including firewall management, stress testing, consulting services. It also provides computer hardware, software, network technology, and systems management necessary to customers. In the year of 2000, it had revenues of 168 million and a net loss of 143 million....
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