Digital Island, Inc. (B): Managing The Wild Ride

By Andrea Higuera, Charles Holloway, John Morgridge, Dan Thomas
2002 | Case No. E123B
This case is the second of two cases written about Digital Island, Inc. Digital Island, Inc. was founded in January 1997 and the company’s vision was: To allow enterprises to tap the power of the Internet. Given this vision, Digital Island’s initial offering focused on providing networking and data hosting services to help companies overcome the problems associated with the public Internet. Expanding on its initial vision, Digital Island’s mission later became: To provide Internet infrastructure and services that enable businesses to interact and transact with their customers in a fast, guaranteed, and relevant manner. These services included content delivery services and application services in addition to networking and hosting services. The focus of this case is on Digital Island’s rapid growth between June 1998 and mid-200. During that time, Digital Island’s management team carefully analyzed its needs and opportunities to determine whether or not it was appropriate to partner, buy, or build when they wanted to enhance the companies products and services. In mid-2000, however, Digital Island began to feel the adverse impacts of the drop in the NASDAQ and the resulting economic downturn. During the first half of 2001, Digital Island started to see the number of new contracted customers begin to drop rapidly, and the management team realized they needed to find a partner or a new source of funding. On May 11, 2001, Digital Island received an acquisition offer from Cable & Wireless, the British telecommunications company, of $3.40 per share. Ruann Ernst, Digital Island’s president and CEO, must decide whether to recommend that the board of directors accept this offer.
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