Customers urged to study supplier finances in wake of 2e2 collapse

End users should consider potential suppliers' cashflow just as much as the quality of their wares, says IDC

2e2 did not adapt well enough from product reselling to hosting and cloud, according to IDC, which claims that customers should place as much emphasis on the financial health of a cloud provider as on the quality of its offering.

IDC analyst Douglas Hayward, writing in a research update, argued that the collapse of 2e2 "reminds us that the mentality and culture of the channel is very different from that of outsourcing and the cloud".

He said: "2e2 had some very smart managers who had built and run the business successfully in the past, yet in the end it sadly failed.

"We suspect one important reason with significance beyond 2e2 is that the organisation was not able to mutate its overall DNA fast enough from the old world of product reselling and support services to the new world of hosting and cloud services."

Hayward added that strong emphasis should be placed on a firm's cashflow, debt level and credit rating, which all affect a provider's ability to supply services.

"The financial credibility of a services or product supplier is as important a consideration as the quality of its current offerings and of its future road map," he said. "Look for warning signs such as high debt, which can cause crippling interest payments that imperil cashflow; continued annual losses; poor cashflow, which can lead to insolvency; and poor credit ratings, which can cause suppliers and subcontractors to withdraw their services."

Independent IT lawyer Dai Davis said that disaster recovery planning should also be at the forefront of customers' minds. He argued that administrators have the interests of shareholders and the company in question in mind, and that customers and staff are not an initial concern.

"[Administrators'] primary duty is not to customers and there is a conflict of interest and the extent to which customers can rely on administrators is questionable; they are not their responsibility," he added.

"It really highlights the need for a disaster solution, but not with the same cloud provider. The technical term for this is escrow and it means [in this case] having disaster recovery with lots of companies, but this can be very difficult and expensive, and could negate the benefits of cloud."