Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
|
Large
accelerated filer o
|
Accelerated
filer x
|
|
Non-accelerated
filer o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o
No x
The
aggregate market value of the registrant’s outstanding common stock held by
non-affiliates of the registrant was $698,160,175 based on a closing price of
$14.42 on June 30, 2007 as quoted on the NASDAQ Global Market.
As of
March 6, 2008, 49,793,430 shares of the registrant’s common stock, par
value $0.001 per share, were issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
portions of the registrant’s definitive proxy statement to be filed with the
Securities and Exchange Commission relative to the registrant’s 2008 annual
meeting of stockholders, which will be filed within 120 days after the end of
the fiscal year covered by this report, are incorporated by reference in Part
III to this annual report on Form 10-K.
TABLE
OF CONTENTS
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PART
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PART
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PART
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FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K contains “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements include statements regarding industry trends, our
future financial position and performance, business strategy, revenues and
expenses in future periods, projected levels of growth, and other matters that
do not relate strictly to historical facts. These statements are often
identified by the use of words such as “may,” “will,” “seeks,” “anticipates,”
“believes,” “estimates,” “expects,” “projects,” “forecasts,” “plans,” “intends,”
“continue,” “could,” “should,” or similar expressions or variations. These
statements are based on the beliefs and expectations of our management team
based on information currently available. Such forward-looking statements are
not guarantees of future performance and are subject to risks and uncertainties
that could cause actual results to differ materially from those contemplated by
forward-looking statements. Important factors currently known to our management
that could cause or contribute to such differences include, but are not limited
to, those set forth in this annual report under “Item 1A . Risk
Factors.” We undertake no obligation to update any forward-looking
statements as a result of new information, future events or otherwise.
As used
herein, except as otherwise indicated by context, references to “we,” “us,”
“our,” or the “Company” refer to Internap Network Services
Corporation.
PART
I
Overview
We were
incorporated as a Washington corporation in 1996 and reincorporated in Delaware
in 2001. Our principal executive offices are located at 250 Williams Street,
Suite E-100, Atlanta, Georgia 30303, and our telephone number at that location
is (404) 302-9700. Our common stock trades on the NASDAQ Global Market under the
symbol “INAP.”
We market
products and services that optimize the performance and reliability of strategic
business Internet applications for e-commerce, customer relationship management,
or CRM, multimedia streaming, Voice-over Internet-Protocol, or VoIP, virtual
private networks, or VPNs, and supply chain management. Our product and service
offerings are complemented by value-added services such as colocation and data
center services and managed security services. We also provide products and
services for storing and delivering audio and video digital media to large
audiences over the Internet through a subsidiary, VitalStream Holdings, Inc., or
VitalStream. Our content delivery network, or CDN, was purpose-built for
streaming digital media and enables content owners to monetize their digital
media assets via both subscription and advertising-based business models. Our
VitalStream subsidiary also offers: proprietary advertising selection and
advertising insertion capabilities, enabling customers to turn existing
streaming traffic into content packaged with advertising; Internet Protocol
Television, or IPTV; professional services; and small business services.
Additionally, we offer high levels of pre- and post- installation service and
consulting.
As of
December 31, 2007, we delivered services through our 50 service points across
North America, Europe, Asia, and Australia, which feature direct high-speed
connections to multiple major Internet backbones such as AT&T Inc., Sprint
Nextel Corporation, Verizon Communications Inc., Savvis, Inc., Global Crossing
Limited, Level 3 Communications, Inc., and Verio, an NTT Communications Company.
Our proprietary route optimization technology monitors the performance of
Internet networks allowing our customer traffic to be “intelligently” routed
over the optimal path in a way that maximizes performance and reliability of the
transactions by minimizing loss and delays inherent across the Internet. We
believe our unique managed multi-network approach provides better performance,
control and reliability compared to conventional Internet connectivity
alternatives. Our service level agreements, or SLAs, guarantee performance
across the entire Internet, excluding local connections, whereas providers of
conventional Internet connectivity typically only guarantee performance on their
own network. Internap serves customers in a variety of industries including
financial services, entertainment and media, travel, e-commerce, retail, and
technology. As of December 31, 2007, we provided our services
to approximately 3,800 customers in the United States and
abroad.
Developments
in 2007
VitalStream
Acquisition. On February 20, 2007, we completed our acquisition of
VitalStream pursuant to an Agreement and Plan of Merger, dated October 12,
2006. As a result, we issued approximately 12.2 million shares of common
stock to VitalStream stockholders, which represented approximately 25% of
our outstanding shares. We also assumed outstanding options for the
purchase of shares of VitalStream common stock, which we converted into options
to purchase approximately 1.5 million shares of Internap common stock.
VitalStream is now a wholly-owned subsidiary of Internap.
Restructuring
Liability.
On March 31, 2007, we incurred a restructuring and impairment charge totaling
$10.3 million. The charge was the result of a review of our business,
particularly in light of our acquisition of VitalStream, and the finalization of
our overall integration and implementation plan during the first
quarter. The charge to expense included $7.8 million for leased facilities,
representing both the net present value of costs less anticipated sublease
recoveries that will continue to be incurred without economic benefit to us and
costs to terminate leases before the end of their term. The charge also included
severance payments of $1.1 million for the termination of certain Internap
employees and $1.4 million for impairment of assets. Related expenditures are
estimated to be $10.7 million, of which $2.8 million has been paid during the
year ended December 31, 2007, and the balance continuing through December 2016,
the last date of the longest lease term. The impairment charge of $1.3 million
was related to the leases referenced above and less than $0.1 million for other
assets.
We also
incurred a $1.1 million impairment recorded for a sales order-through-billing
system, which was a result of an evaluation of the existing infrastructure
relative to our new financial accounting system and the acquisition of
VitalStream.
Write-Off
of Investment.
In connection with the preparation of our quarterly report for the
quarter ended June 30, 2007, we wrote-off an investment, totaling $1.2 million,
representing the remaining carrying value of our investment in series D
preferred stock of Aventail Corporation, or Aventail. We made an initial cash
investment of $6.0 million in Aventail series D preferred stock pursuant to an
investment agreement in February 2000. In connection with a subsequent round of
financing by Aventail, we recognized an initial impairment loss on our
investment of $4.8 million in 2001. On June 12, 2007, SonicWall, Inc. announced
that it had entered into an agreement to acquire Aventail for approximately
$25.0 million in cash. The transaction closed on July 11, 2007, and all shares
of series D preferred stock were cancelled and the holders of series D preferred
stock did not receive any consideration for such
shares. Consequently, we recorded a write-off of our investment in
Aventail to reduce our carrying value to $0.
Rights Agreement.
On March 15, 2007, the Board of Directors declared a dividend of one
preferred share purchase right, or a Right, for each outstanding share of common
stock, par value $0.001 per share, of the Company. The dividend was payable on
March 23, 2007 to the stockholders of record on that date. Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share
of Series B Preferred Stock of the Company, par value $0.001 per share, or the
Preferred Shares, at a price of $100.00 per one one-thousandth of a Preferred
Share, subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent dated April 11,
2007.
Data Center
Expansion.
On June 12, 2007, we announced that we approved an investment of up to
$40.0 million to fund the expansion of our data center facilities in several key
markets. We anticipate implementing the expansion over the next several calendar
quarters, with at least a portion of the funding to be provided under our credit
agreement, discussed below. As of December 31, 2007, we have incurred
costs of less than $10.0 million pursuant to this expansion.
Credit Agreement.
On September 14, 2007, we entered into a $35.0 million credit agreement.
We discuss this agreement in note 10 to the consolidated financial statements
and the section captioned “Liquidity and Capital Resources” under “Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.”
Industry
Background
The
emergence of multiple Internet networks
The
Internet originated as a restricted network designed to provide efficient and
reliable long distance data communications among the disparate computer systems
used by government-funded researchers and organizations. As the Internet
evolved, businesses began to use the Internet for functions critical to their
core business and communications. Telecommunications companies established
additional networks to supplement the original public infrastructure and satisfy
increasing demand. Currently, the Internet is a global collection of multitudes
of interconnected computer networks, forming a network of networks. These
networks were developed at great expense but are nonetheless constrained by the
fundamental limitations of the Internet’s architecture. Each network must
connect to one another, or peer, to permit its users to communicate with each
other. Consequently, many Internet network service providers, or ISPs, have
agreed to exchange large volumes of data traffic through a limited number of
public network access points and a growing number of private connections called
peering.
Peering
network access points are not centrally managed. We believe that no single
entity has the economic incentive or ability to facilitate problem resolution or
to optimize peering within the public network access points, nor the authority
to bring about centralized routing administration. Additionally, since these
arrangements are based on non-regulated agreements, disagreements between
carriers impact performance. As a consequence of the lack of coordination among
networks at these public peering points, and in order to avoid the increasing
congestion and the potential for resulting data loss at the public network
access points, a number of the ISPs have established private interfaces
connecting with their peers for the exchange of traffic. Although private
peering arrangements are helpful for exchanging traffic, they do not solve all
of the structural and economic shortcomings of the Internet.
The
problem of inefficient routing of data traffic on the Internet
An
individual ISP only controls the routing of data within its network, and its
routing practices tend to compound the inefficiencies of the Internet. When an
ISP receives a packet that is not destined for one of its own customers, it must
route that packet to another ISP to complete the delivery of the packet on the
Internet. Since the use of a public network access point or a private peering
point typically involves no economic settlement, an ISP will often route the
data to the nearest point of traffic exchange, in an effort to get the packet
off its network and onto a competitor’s network as quickly as possible to reduce
capacity and management burdens on its transport network. Once the origination
traffic leaves the network of an ISP, service level agreements with that ISP
typically do not apply since that carrier cannot control the quality of service
on another ISPs network. Consequently, in order to complete a communication,
data ordinarily passes through multiple networks and peering points without
consideration for congestion or other factors that inhibit performance. For
customers of conventional Internet connectivity providers, this transfer can
result in lost data, slower and more erratic transmission speeds, and an overall
lower quality of service, especially where the ISP is not familiar with the
performance of the destination network. Equally important, these customers have
no control over the transmission arrangements and have no single point of
contact that they can hold accountable for degradation in service levels, such
as poor data transmission performance, or service failures. As a result, it is
virtually impossible for a single ISP to offer a high quality of service across
disparate networks.
The
problem of poor application performance over distant network paths
The major
protocols often utilized over data networks perform poorly when network latency
is large or network paths are subject to packet and data loss. Network latency
is a measure of the time it takes data to travel between two network points. In
networks, network latency often depends on physical distance but may also depend
on conditions such as congestion. One measure of performance is effective
throughput. Throughput is defined as the rate of data transfer, typically
expressed in bits per second or megabits per second, or Mbps. It can be limited
by the size of the network connection, for example, 1.5Mbps for a standard T1
data connection, or it can be limited by the protocols reacting to certain
network conditions such as latency or packet loss. Typically, throughput is
inversely proportional to network latency. Network latency is a significant
factor when communicating over vast distances such as the global network paths
between two continents. The more distant the communicating parties are from each
other, the higher the network latency will be resulting in lower effective
throughput. This throughput may be lower than the available network capacity and
often results in poor utilization of purchased network capacity. Additionally,
many network protocols react to packet loss by requesting a retransmission of
the missing data. This retransmission is often interpreted as intermediate
network congestion by the protocol that then responds with more conservative
network usage and a further reduction of effective throughput. As a result,
business applications that must communicate over the vast distances common in
the global economy are subject to these limitations, which result in poor
application performance and poor utilization of network assets. Network
conditions vary significantly in many parts of the developing world and may also
result in poor application performance. Yet the global economy is a factor in
many businesses operating in these parts of the developing world where distances
are vast and network conditions are poor.
The
growing importance of the Internet for business-critical Internet-based
applications
Once
primarily used for e-mail and basic information retrieval, the Internet is now
used as a communications platform for an increasing number of business-critical
Internet-based applications, such as those relating to electronic commerce,
VoIP, supply chain management, customer relationship management, project
coordination, streaming media, and video conferencing and
collaboration.
Businesses
are unable to benefit from the full potential of the Internet primarily because
of performance issues discussed above. The emergence of technologies and
applications that rely on network quality and require consistent, high-speed
data transfer, such as VoIP, multimedia document distribution and streaming, and
audio and video conferencing and collaboration, are hindered by inconsistent
performance. We believe that providers who provide a consistently high quality
of service that enables businesses to successfully and cost effectively execute
their business-critical Internet-based applications over the public network
infrastructure through superior performance Internet routing services will drive
the market for Internet services.
The
growing demand for delivery of rich media content over the Internet
The
proliferation of Internet-connected devices and broadband Internet connections
coupled with increased consumption of media over the Internet including
personalized media content have created a demand for delivery of rich media
content. Increasingly, as the volume and quality of dynamic content progresses,
viewers of all ages are spending more and more time using the
Internet. Viewers now expect to be able to watch a movie or
television show online, view the latest news clips, take a virtual walk-through
of a home, hear a podcast, watch a live sporting event or concert, or
participate in an educational course just to name a few
examples. Companies that need to deliver rich media content can
either deliver the content using basic Internet connectivity or utilize a
content distribution network, or CDN. Because of the inherit
weaknesses of the Internet, delivery of rich media content is not
reliable. To overcome this problem, companies can either invest
substantial capital to build the infrastructure to bypass the public Internet or
utilize a third party’s CDN.
Our
Market Opportunity
Historically,
network service providers, or NSPs, have maintained at-will agreements to
deliver Internet traffic on a “best efforts” basis without guaranteeing various
levels of quality of service. This best efforts delivery is sub-optimal for
time-sensitive and real-time applications that require uninterrupted streams of
data such as voice and video. For companies that rely on the Internet as a
medium for commerce or relationship management, this unpredictable performance
often translates into lost revenue, decreased productivity and dissatisfied
customers.
The
Internet serves as a core component of many direct sales, supply chain and
collaboration strategies and has extended our customers’ ability to reach global
partners, suppliers and customers. This changing landscape, combined with an
increasingly dispersed workforce and the adoption of emerging technologies like
VoIP and streaming media, has increased the need for fast, reliable connectivity
and delivery of content rich media. We believe Internap meets this requirement
and is well positioned to help businesses leverage the Internet to attain
improved productivity, decreased transactional costs and new revenue
streams.
Services
and Technology
We offer
the following managed services and premise-based products:
High Performance Internet
Protocol, or IP
Our
managed intelligent routing service provides fast, reliable connectivity to all
major backbones and dynamically identifies the optimal path for our customers’
traffic. The service is also supported by industry leading service level
agreements with 100 percent network availability, excluding local connections.
Our team of certified network engineers supports our customers 24 hours a day,
every day of the year. We charge for these services based on a fixed-fee, usage
or a combination of both fixed fee and usage basis.
Data Center Services
We
operate data centers where customers can host their applications directly on our
network to eliminate issues associated with the quality of local connections.
Data center services also enable us to have a more flexible product offering,
such as bundling our high performance IP connectivity and managed services such
as content delivery along with hosting customers’ applications. We charge
monthly fees for data center services based on the amount of square footage that
the customer leases in our facilities. We also have relationships with various
providers to extend our Private Network Access Point, or P-NAP, model into
markets with high demand.
Flow Control Platform, or
FCP
Our FCP
is a premise-based intelligent routing hardware product for customers who
run their own multiple network architectures, known as multi-homing. The
prevalence of multi-homed networks is increasing. To operate each network at the
highest performance level, a significant amount of expertise is required to
monitor and adjust to global Internet routing, which is very dynamic in nature.
The FCP functions similarly to our P-NAP, monitoring the global Internet and
automatically adjusting routing real-time to balance the traffic across multiple
links to optimize performance. FCP can be tuned to manage network traffic on two
dimensions: cost and performance. The user can set thresholds that balance
performance against cost, for example routing all traffic across low cost
providers while specific minimum performance thresholds are met. If the
performance deteriorates, then the traffic can be routed over a better
performing but more costly provider to maintain minimum specified performance.
This option allows the customer to enjoy service with the optimized performance
and economics. Another key feature is minute-by-minute visibility reports and
logs on the performance and operation of the customer’s network. Our customers
find this information to be very useful for carrier SLA verification, monitoring
and overall network management.
FCP is
one of only a few of the industry’s route control appliances that analyzes and
re-routes Internet traffic flows in real-time. We offer FCP as either a one-time
hardware purchase or as a monthly subscription service. Sales of FCP also
generate annual maintenance fees and professional service fees for installation
and ongoing network configuration. Since the FCP emulates our P-NAP service in
many ways, this product affords us the opportunity to serve customers outside of
our P-NAP market footprint.
Other Products &
Services
To
complement our existing portfolio, we also offer managed Internet services via
third parties. These services include virtual private networking and managed
security services, including VeriSign, Inc. intrusion detection/prevention and
managed firewall services to more broadly support our clients’
Internet applications. These also include a continuation of Akamai Technologies,
Inc., or Akamai, CDN services through September 30, 2007.
We offer
the following products and services based on our CDN:
Next Generation Cluster
Architecture Content Delivery Network
Our CDN
is designed to optimize delivery of streaming media content. The network
incorporates high performance equipment with unparalleled 10 Gigabit uplinks to
multiple tier-1 network providers and geographic diversity. The network is
comprised of multiple data centers containing distributed server clusters. This
multi-homed network helps minimize exposure at congested peers. Our close
proximity to other backbone providers ensures we can quickly add bandwidth when
needed. Distributed clustering technology for streaming and hosting services
allows us to scale the network based on customer demand.
Our
network is protected by advanced security systems, including firewalls, proxies
and private networking to protect critical systems from intruders. We
continuously monitor for security vulnerabilities and malicious activity and
employ a staff of security experts to respond to security-related incidents.
Additionally, we provide various encryption and digital rights management
services that allow our customers to protect their content on our
network.
Streaming Service for
Flash
We worked
hand-in-hand with Adobe, which was formerly known as Macromedia, to develop a
Flash streaming platform, and are an experienced Flash video streaming service
provider. This method of delivering video on demand is reliable, interactive and
easy to use, giving our customers the opportunity to utilize their existing
Flash development environment, and streamlining their workflow. Our Flash video
streaming service permits our customers to upload files to our streaming network
without having to set up and maintain video servers.
As an
Adobe Flash Video Streaming Service provider, we can support Flash 8 and Flash
Media Server 2.0. The new video features found in the Flash Platform with the
announcement of Flash Player 8 offer enhanced capabilities for interactive
video, enabling our customers to deliver high-quality video at the smallest file
sizes while ensuring faster and smoother video playback. These enhancements
significantly improve the overall viewing experience of streaming
video.
Streaming Service for
Windows Media
Our
streaming service for windows media is ideal for businesses seeking to
distribute or sell their high-quality video online with maximum control of their
content. Windows Media is a flexible platform that enables content providers to
protect and deliver live events, corporate presentations, news, sports, music,
entertainment events, or movies with the confidence that digital media files
will stay protected, no matter how they are distributed. We have been a
Microsoft Premier Certified Hosting Service provider since October
2002.
Content Delivery
Service
Our
streaming customers often need to utilize download services as part of their
business solution. In response to this customer demand, we provide file download
services to enable our customers to download critical content including HTML,
graphics, media files, software, and podcasts to their customers.
Professional
Services
This
division assists our customers in building the unique solutions required for
their specialized business models. Through internal and external resources,
these services design, build and deploy custom solutions, such as video players,
graphical user interfaces, or GUIs, advertising components, control
panels for content management and reporting, authentication web services, and
Flash Communication Server applications. These solutions are fully integrated
into our CDN. We also architect, design, build, and deploy web applications that
feature video or audio streaming and interface with existing customer systems.
Fees for these services vary by project.
Authentication
Our
authentication service provides token-based authentication services. This
service protects and delivers customers’ offerings by allowing only authorized
viewers to access content, which enables customers to take greater advantage of
the Internet as a reliable and cost-effective distribution channel.
Managed
Servers
Our
managed servers are an outsourced hosting service for our customers. We provide
server hardware, bandwidth and continuous system administration, including
server and network monitoring, reporting, ongoing maintenance, security, and
backup. We charge a fixed monthly fee for standard hosting
services.
Advertising
Internap
advertising services provides customers with a one-stop solution for delivering
integrated streaming and digital advertising content on the Internet. The
solution inserts in-stream advertisements into “live” and “on-demand” Internet
streaming broadcasts to target specific listener demographics, enabling
advertisers to reach the most engaged opt-in audio and video audiences with a
seamless, in-stream advertising experience. Campaign management and advertising
results reporting complete the comprehensive solution.
Network
Access Points, Points of Presence and Data Centers
We
provide our services through our network access points across North America, and
in Europe, Asia, and Australia. Our network access points and data centers
feature direct high speed connections to multiple major ISPs, including AT&T
Inc., Sprint Nextel Corporation, Verizon Communications Inc., Savvis, Inc.,
Global Crossing Limited, Level 3 Communications, and Verio, an NTT
Communications Company, as well as Internet Initiative Japan, Inc. and KDDI
Corp. in Asia. Through our CDN points of presence, or POPs, we provide access to
the Internet for our CDN customers. As of December 31, 2007, we provided
services worldwide through 50 IP service points, 42 data center locations and 12
POPs. We directly operate eight of these sites and have operating agreements
with third parties for the remaining locations in the following
markets:
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Internap
operated
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Operated
under third party agreements
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Boston
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Orange
County/
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Amsterdam
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Boston
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Chicago
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San
Diego
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Hong
Kong
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Houston
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Dallas
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Philadelphia
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London
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New
York
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Denver
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Phoenix
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Osaka(1)
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Seattle
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Los
Angeles
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San
Francisco
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Singapore
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Miami
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San
Jose
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Sydney
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New
York
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Washington
DC
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Tokyo(1)
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Oakland
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Toronto
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(1)
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Through
our joint venture in Internap Japan Co., Ltd. with NTT-ME Corporation and
Nippon Telegraph and Telephone
Corporation.
|
We are
dependent upon the ISPs noted above as well as other ISPs, telecommunications
carriers and other vendors in the United States, Europe and the Asia-Pacific
region, some of whom have experienced significant system failures and electrical
outages in the past. Users of our services may experience difficulties due to
system failures unrelated to our systems and services. If for any reason, our
vendors and providers fail to provide the required services, our business,
consolidated financial condition, results of operations or cash flows could be
materially adversely impacted.
Segments
As
discussed in note 5 to the consolidated financial statements included in
this annual report on Form 10-K, we operate in three business segments: IP
services, data center services and CDN services.
The
following is a brief description of each of our reportable business
segments.
IP
Services
Our
patented and patent-pending network performance optimization technologies
address the inherent weaknesses of the Internet, allowing enterprises to take
advantage of the convenience, flexibility and reach of the Internet to connect
to customers, suppliers and partners. Our solutions take into account the unique
performance requirements of each business application to ensure performance as
designed, without unnecessary cost. Prior to recommending appropriate network
solutions for our customers’ applications, we consider key performance
objectives including (1) performance and cost optimization, (2) application
control and speed and (3) delivery and reach. Our charges for IP services are
based on a fixed-fee, usage or a combination of both fixed fee and
usage.
Our IP
services segment also includes our flow control platform, or FCP. The FCP
provides network performance management and monitoring for companies with
multi-homed networks and redundant Internet connections. The FCP
proactively reviews customer networks for the best performing route or the most
cost-effective and routes according to our customers’ requirements. We
offer FCP as either a one-time hardware purchase or as a monthly subscription
service. Sales of FCP also generate annual maintenance fees and professional
service fees for installation and ongoing network configuration. Since the FCP
emulates our private network access points, or P-NAP, service in many ways, this
product affords us the opportunity to serve customers outside of our P-NAP
market footprint. This product represents approximately 4% of our IP services
revenue and approximately 2% of our consolidated revenue for the year ended
December 31, 2007.
Data
Center Services
Our data
center services provide a single source for network infrastructure, IP and
security, all of which are designed to maximize solution performance while
providing a more stable, dependable infrastructure, and are backed by guaranteed
service levels and our team of dedicated support professionals. We offer a
comprehensive solution at 42 service points, including eight locations managed
by us and 34 locations managed by third parties.
Data
center services also enable us to have a more flexible product offering,
including bundling our high performance IP connectivity and managed services,
such as content delivery, along with hosting customers' applications. We charge
monthly fees for data center services based on the amount of square footage that
the customer leases in our facilities. We also have relationships with various
providers to extend our P-NAP model into markets with high demand.
CDN
Services
Our CDN
services enable our customers to quickly and securely stream and distribute
video, audio, advertising, and software to audiences across the globe through
strategically located data centers. Providing capacity-on-demand to handle large
events and unanticipated traffic spikes, content is delivered with high quality
regardless of audience size or geographic location. Our MediaConsole® content
management tool provides our customers the benefit of a single, easy to navigate
system featuring Media Asset Management, Digital Rights Management, or DRM,
support, and detailed reporting tools. With MediaConsole, our customers can use
one application to manage and control access to their digital assets, deliver
advertising campaigns, view network conditions, and gain insight into habits of
their viewing audience.
Our CDN
and monetization services provide a complete turnkey solution for the
monetization of online media. These multi-faceted “live” and “on-demand”
advertising insertion and advertising placement solutions include a full
campaign management suite, inventory prediction tools, audience research and
metrics, and extensive reporting features to effectively track advertising
campaigns in real-time. Online advertising solutions enable our customers to
offset the costs associated with the creation, transformation, licensing, and
management of online content. Prior to our acquisition of VitalStream on
February 20, 2007, we did not offer proprietary CDN services, but instead, we
were a reseller of third party CDN services for which the results of
operations are included in Other revenues and direct costs of network, sales and
services, discussed below.
Other
Other
revenues and direct costs of network, sales and services include our
non-segmented results of operations, including certain reseller and
miscellaneous services such as third party CDN services, termination fee
revenue, other hardware sales, and consulting services.
Financial
Information about Geographic Areas
For each
of the years ended December 31, 2007, 2006 and 2005, less than 10% of our total
revenues was derived from our operations outside the United States.
Sales
and Marketing
Our sales
and marketing objective is to achieve market penetration and increase brand
recognition among business customers in key industries that use the Internet for
strategic and business-critical operations. We employ a direct sales team with
extensive and relevant sales experience with our target market. Our sales
offices are located in key cities across North America, as well as one office
each in the United Kingdom and Singapore.
Our sales
and service organization includes 116 employees in direct and channel sales,
professional services, account management, and technical
consulting. As of December 31, 2007, we had approximately 45 direct
sales representatives whose performance is measured on the basis of achievement
of quota objectives.
To
support our sales efforts and promote the Internap brand, we conduct
comprehensive marketing programs. Our marketing strategies include
on-line advertisements, participation at trade shows, an active public relations
campaign, and continuing customer communications. As of December 31,
2007, we had seven employees in our marketing department.
Research
and Development
Product
development costs are primarily related to network engineering costs associated
with changes to the functionality of our proprietary services and network
architecture. Such costs that do not qualify for capitalization as software
development costs are expensed as incurred. Research and development costs,
which are included in product development cost and are expensed as incurred,
primarily consist of compensation rela