Hancock, Ellen M.

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Hancock, Ellen M.

(1943-)
Exodus Communications

Overview

Ellen Hancock was the CEO of Exodus Communications, a Web–hosting service, from March 1998 to September 2001. During that time, the company grew tremendously, stock prices soared, and Hancock was on top of the world. Then the bottom fell out of the technology industry, which sent Exodus on an unstoppable downward spiral, ending in bankruptcy and restructuring.

Personal Life

Ellen Marie Hancock, the oldest of four siblings, was born on April 15, 1943, in the Bronx, New York, to Peter and Helen Mooney. Her mother, an Irish immigrant, cared for the children at home, and her father, an Irish American, worked at Audio Productions, a New York advertising agency. Starting out as an errand boy, Hancock's father eventually rose through the ranks to become the company's president. Hancock, a straight–A student, attended an all–girl Catholic school and, for a time, considered becoming a nun. However, strongly influenced by her father, she was drawn to the business world at an early age. She told Ben Elgin of Business Week of the evenings when her father would invite his business friends to dinner: "I couldn't cook, but I was just fascinated with the conversation and the range of topics. I remember saying, 'I want to be like this when I grow up.'"

With a strong affinity to logic and math, Hancock enrolled in the College of New Rochelle and earned a Bachelor of Science degree in mathematics in 1965. The following year she completed her master's degree in mathematics at Fordham University. On September 17, 1971, she married W. Jason Hancock, a fellow employee at IBM. The couple's primary home is in Ridgefield, Connecticut. Hancock is widely known for her love of motorcycles. In the 1970s she owned two small Hondas, but after taking a spill on a back road in Connecticut in the early 1990s that resulted in scrapes and cuts, she decided her motorcycle driving days were done. Letting her husband do all the driving now, she's content to be a passenger.

Career Details

Just one month after graduating from Fordham in 1966, Hancock accepted a position as a junior programmer at IBM, the start of a 29–year–long stint with the company. During the nearly three decades that Hancock spent at IBM, she held a number of increasingly important positions, and by 1995 she was senior vice president and group executive for networking hardware, networking software, and software solutions departments, with 15,000 employees under her charge. She was the first woman ever to achieve the level of senior vice president at IBM. However, her career with IBM came to a bitter end in 1995. Hoping to be named IBM's new CEO, she was passed over when the company brought in Louis V. Gerstner Jr. to fill the position. According to reports, a personality conflict developed between Hancock and Gerstner. Hancock, known for her outspokenness, did not wish to stay with the company in the lesser role, so for the first time since she was a graduate student, at the age of 52, Hancock went looking for a job.

After the stability of her long–term position at IBM, the decade following her departure was filled with numerous notable successes and an equal number of significant disappointments. After leaving IBM, Hancock signed on with National Semiconducter Corporation, a manufacturer of computer chips, as the chief operating officer, where she was responsible for technology and product development. However, two years later, history repeated itself and Hancock was passed up for the vacated CEO office, and she once again went looking for another position. She found it at Apple Computer as the chief technical officer. Her main responsibility was to find or develop an advanced operating system for the Mac computer. But she became unpopular among the staff when she required that they work on developing a new system in–house at the same time that she was working to acquire one from an outside source. The result was that this job, like the one before, proved temporary; when Steve Jobs, the founder of Apple Computers, returned in 1997 as the company's CEO, he cleaned house, and Hancock was out the door once again—with no kind words from Jobs who did not think highly of her abilities.

During the winter of 1997, Hancock did some soul searching, wondering how, in just three years' time, her professional life had become so fragmented. Her luck changed quickly, however, when Dan Lynch, a longtime friend, introduced her to the board of directors of Exodus Communications, of which he was a member. The company was looking for a new CEO to develop its small Web–hosting operations. On March 10, 1998, five months after being fired by Jobs, Hancock became the president of Exodus. Six months later, on September 9, 1998, K. B. Chandrasekhar, who co–founded Exodus Communications in 1994, announced that Hancock had been promoted to CEO, saying, according to an Exodus press release, "We have tremendous opportunities before us and Ellen has proven that she has the ability to take this company to the next level. Her expertise and leadership have helped us achieve aggressive company milestones and we're confident in her ability to grow our U.S. customer base and expand our business internationally."

Hancock came on board with Exodus during a period of incredible growth. The company basically rented data–center space to companies who conducted business on the Internet. Companies installed and operated their own systems in an Exodus data center, with Exodus providing the space, power, and network broadwidth. In 1998 the demand for data center space was far greater than the supply, and, as a result, Exodus was growing by leaps and bounds. Just nine days after moving into the corner office, Hancock guided the company through its initial public offering (IPO), and in 1998 its revenues grew 308 percent to $215 million. At the end of 2000, revenues totaled $818 million.

At the beginning of 1999, Exodus maintained eight data centers; by the end of 2000, the company had a total of forty–six, either open or under construction. "We're going into the European market. We're going into the Asian market," Hancock told Computer Reseller News. "The next two years, we will remain focused on building centers. There is still demand for data center space." Not only were the number of sites increasing but also their size: the first Exodus data center was 14,000 square feet, and by 2000 some new sites were as large as 300,000 square feet. Essentially, Exodus was profiting from the explosion of dot–com companies that flooded the Web in the mid–to late 1990s, and, as Exodus continued to grow at an exceptional rate, Hancock received high praise for her leadership of the company. Harry Blount, an analyst at Donaldson, Lufkin & Jenrette told Computer Reseller News, "[Hancock] sees two to three steps ahead, yet she's surrounded with a strong operations team to drive day–to–day operations. They've blown away every comparable company. . . . [She's] done an exceptional job."

By October 1999, just 18 months after completing the IPO, Exodus stock was trading at $70 a share, up more than 1,000 percent from its initial price, bringing its market to $5.6 billion—more than six times its one–year revenues. On September 28, 2000, Exodus entered into an agreement to purchase rival company GlobalCenter for $6.5 billion, making Exodus the largest Internet host with over 5,000 customers, including such well–known names as BestBuy.com, CBS SportsLine, Compaq Computer, eBay, General Electric, Google, Handspring, L'Oreal, MSNBC.com, Microsoft, Merrill Lynch, OfficeMax, Reebok, Starbucks, Sun Microsystems, USAToday.com, and Yahoo!

Despite the incredible growth, Hancock knew she had her work cut out for her. Because of the cost of the massive expansion of data centers, increased revenues did not translate into a bottom line profit. Although revenues increased over 300 percent in 1998, losses grew to 41 percent. Hancock hoped to position the company so that it would start seeing a profit by the first quarter of 2001, with analysts expecting profitability to be reached by 2002. Ultimately both predictions proved much too rosy an outlook. As early as 1999, some analysts were more correctly predicting big troubles ahead for the company.

Social and Economic Impact

When the company was formed in 1994, there was almost no demand for its services; however, as demand mushroomed, so did competitors. In 1999 Cheryl Strauss Einhorn of Barron's recognized that increased competition could prove to be a problem for Exodus in the future. Along with Intel, Strauss Einhorn noted, "[C]ompetitors include big, well–known names like AT & T, MCI WorldCom, and GTE. . . . These firms all have greater name recognition, larger customer bases and greater financial, technological and marketing resources than does Exodus. More importantly, they can bundle their Web products with other services, making it more difficult for Exodus to compete." In November 2000, Business Week's Ben Elgin wrote, "Renting data–center real estate has worked fine for Exodus. . . . But, over time, such services are expected to be readily available, and pricing is expected to plummet. To avoid that fate, Exodus is expanding the scope of its services to match a new breed of Internet outsources. These so–called managed service providers offer soup–to–nuts services covering all of a customer's Internet needs, including tending the servers and software for Web sites and e–commerce application."

Chronology: Ellen M. Hancock

1943: Born.

1966: Earned master's degree in mathematics; joined IBM as junior programmer.

1995: Left IBM; joined National Semiconductor as chief operating officer.

1997: Left National Semiconductor; joined Apple Computer.

1998: Became chief executive officer of Exodus Communications; revenues grew over 300 percent.

1999: Exodus stocks traded as high as $70 a share.

2000: Forty–six data centers either open or were under construction.

2000: Acquired rival GlobalCenter for $6.5 million, making Exodus the largest Web–hosting service.

2001: Dot–com businesses failed in large numbers, Hancock resigned, and Exodus filed for bankruptcy; stock prices fell as low as 17 cents a share.

Even though Hancock was fully aware of the need for Exodus to find new strategic ideas for the future, neither she nor the analysts anticipated the sudden and dramatic downturn in fortunes for Internet–related businesses. As fast as dot–coms entered the market, they were failing just as quickly. The impact on Exodus was immediate and costly. One week after announcing layoffs of 3,000 employees, on August 1, 2001, Exodus stock prices fell to just $1.18, down from a high of almost $90 a share in the spring of 2000. Despite tough times, Hancock continued to talk positively, telling Business Week Online's Olga Kharif on August 3, 2001, "We believe we have not just a viable business, but a great business." In an interview the day before with Corey Grice of CNET News.com, she said, "We have sufficient cash and we can stand alone for a long, long time."

Despite her encouraging words, Exodus was taking a beating, and Hancock along with it. In the second quarter of 2001, the company posted a loss of $583 million, a loss ten times greater than the same period of the previous year, even though gross revenues had doubled. As strongly as she was praised prior to the downturn, afterward Hancock found an equal amount of criticism. Mark Veverka of Barron's wrote, "What is a tad surprising, if not entirely disappointing, is that among the throngs of disenchanted stockholders running scared from the company's shares has been Exodus chief executive, Ellen Hancock. . . . [She] deep–sixed a large chunk of her holdings just weeks before the rest of us would learn that the company's second quarter [of 2001] was a shipwreck."

In May 2001, the company's chief financial officer, chief operating officer, and chief marketing officer all tendered their resignation. In mid–August, three members of the board resigned. And, on September 4, 2001, chairman of the board L. William Krause announced that Hancock was resigning as CEO. In a press release, Krause said, "We agreed with Ellen that it's time to transition the leadership of the company as it maneuvers through challenging times." The day the news was released, Exodus stock prices fell to a record low of 67 cents. Reacting to the news, Joel Yaffe, a senior industry analyst at Giga Information Group, told Network World, "This is a move to appease investors and signal that change is afoot. What it doesn't do is fix the situation. As much as Ellen got a lot of credit for things that weren't beneath her direct control when things were going well, she's now taking a lot of the blame for things that also aren't within her control."

As analysts expected, three weeks after Hancock's departure, on September 27, 2001, Exodus announced that it was filing for bankruptcy. On the morning of the announcement, Exodus shares were down to 17 cents. The company hopes to turn itself around through restructuring its financial debt of over $3 billion and rebound from bankruptcy to once again operate as a viable business. Not only Exodus suffered impressive losses; rivals Digex, AboveNet, and Intel Online all felt a substantial negative impact.

Hancock's future plans are uncertain. Nonetheless, throughout her career she has made a significant impact as a successful businesswoman in the world of high tech traditionally dominated by men. "I have a lot of respect for Ellen," Ruann F. Ernst, CEO of Digital Island, Inc., told Business Week. "She has made it easier for the rest of us."