GroupSpark Opens Hosted Exchange

When Ravi Agarwal founded GroupSpark in 2002, hosted Microsoft Exchange services were scarce -- and out of reach for most small businesses. It wasn't just that the typical cost of $30 to $50 per seat was a bit rich. The option to host wasn't something an SMB's typical IT provider (the local VAR or integrator) even knew about -- let alone could offer.

Four years later, GroupSpark CEO Agarwal is convinced 2007 will be the year of Hosted Exchange, as services have hit the $10 to $15 per seat range. And he's convinced the main purveyors will be the local VARs, integrators, and resellers SMBs rely on most.

"There are 25 million to 30 million SMBs in the U.S.," Agarwal says. "The reseller is the only way to efficiently reach SMBs."

So far, GroupSpark has "reached" over 700 resellers, Agarwal claims. Not bad for a 20-person firm. And with two years' profitability under its belt, GroupSpark has justified Agarwal's personal investment -- the only foundation capital the company's taken so far.

How well is the startup doing? "In 2006, we grew our customer base 250 percent and our number of mailboxes sold 300 percent," Agarwal boasts.His claims loom large, but a publicly held competitor, Apptix, reveals impressive growth as well. For its fourth quarter 2006, reported February 7, Apptix logged 45 percent sequential recurring revenue growth to $7.325 million -- all from selling hosted Exchange and related services. In the second half of 2006, Apptix sold 42,900 seats of Exchange, up 46 percent over the first half of the year.

From Agarwal's perspective, what's missing for Apptix is the reseller focus. And indeed, Apptix's sales were 88 percent direct last quarter, and just 12 percent through resellers like IBM.

Agarwal's familiarity with the SMB market is solid. He's spent most of his relatively short career (he's still 30-something) with companies that did IT outsourcing or hosting for SMBs.

The private-label hosting model is one that's catching on fast, as companies of all kinds see the opportunity in SMBs' struggles to support larger and more strategic Exchange setups. Network Appliance, for one, is eyeing resellers as the means of reaching SMBs with partner Azaleos. (See Demand for On-Demand, On Demand In Demand, and Exchange Issues Spawn Services.

To offer its hosted Exchange services wholesale, GroupSpark deploys a Web-based Private Label Application Delivery (PLAD) platform developed in house. Resellers use this online access to configure hosted Exchange, Windows Mobile, BlackBerry, Good, and Sharepoint services, complete with spam filtering and features like a user billing menu.Agarwal says its can take as little as 15 minutes to type in URLs and logos that equip a VAR to offer services that look like they originated on site -- when in actuality, they come from GroupSpark's Boston-based facilities. GroupSpark's setup includes hundreds of Exchange servers and a NetApp iSCSI SAN, plus the company's own Web-based provisioning system. Security includes intrusion detection systems, firewalls, and monitoring, along with periodic security audits.

One thing: Agarwal acknowledges his network is all in one location, though he expects to implement geographic replication later this year.

He's also investing in 64-bit servers to accommodate the database requirements of Exchange Server 2007. The upgrade will help address Exchange's performance issues, Agarwal notes. "Exchange Server pounds disk I/Os really hard. We buy extra shelves from NetApp because we run out of disk I/O, not capacity," he says.

The challenge for firms like GroupSpark will be larger players like Apptix -- not to mention ones such as Sungard and Globix that are also in the Exchange hosting game. The growth of this market, however, and the apparent demand among SMBs indicate plenty of room for multiple players -- at least for now.

Mary Jander, Site Editor, Byte and Switch