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Vice President, Asia Pacific
Date: January 25, 2017

How a bug-ridden $35 million IT investment led to bankruptcy

Many of us enjoy the occasional game on our smartphones. Some more so than others, but there's no doubt that mobile games are big business. Newzoo's Global Games Market Report pegs 2016's mobile games business at US$99.6 billion, up 8.5 percent from 2015.

Mobile game development is serious business, because developers aren't done when they ship a game. These days, developers need to ensure their games run at peak performance and bug-free -- particularly if they’re online games.

So, what happens when a top-grossing mobile game chokes on game servers run by its hosting company?

That's a question that developer Machine Zone (whose aptly titled "Game of War: Fire Age") had to ponder. The game suffered multiple outages due to problems faced by its hosting company, Peak Hosting.

Machine Zone fired Peak Hosting, and then filed a lawsuit. Peak Hosting responded by counter-suing, arguing in court filings that the game developer was breaching its terms of contract.

Game of war indeed.

The price (and cost) of bugs

Six months prior, Peak Hosting had invested in new equipment from its OEM vendor, spending US$35 million to support its US$48 million annual contract with Machine Zone. Incidentally, this represents 80 percent of Peak Hosting’s business.

Peak Hosting blamed the outages on a bug in its OEM vendor's switch software. It was this bug, and not its mismanagement of the network, that caused the most severe outages, Peak Hosting said.

The OEM vendor, one of the largest providers of networking equipment, acknowledged the bug back in December 2015, a month after Machine Zone sued.

Since then, Peak Hosting has closed seven data centers, let go most of its staff, and filed for bankruptcy.

Clearly, the cost to Peak Hosting wasn’t just what they spent on the new equipment. It's the time spent on architecting and deploying the new hardware, as well as dealing with the inherent software bugs that often accompany an upgrade.

What could have been a winning formula for Peak Hosting—sustaining the use of its current equipment projected at US$6 million, and optimizing where necessary through maintenance—instead became a modern parable for businesses of all sizes on the ultimate cost of dealing with new equipment.

Of course, the real price Peak Hosting paid included the loss of its largest customer, the damage to its reputation, and now bankruptcy.

The conversation about risk

The question is why. Why did Peak Hosting upgrade to the OEM vendor’s new hardware? Were they bedazzled? Were they pressured by existing relationships with the folks in sales?

All good questions for us to think about.

Remember this golden rule: every time you swap hardware in your intricate system of systems, you'd want to be sure that the equipment is thoroughly battle-tested. Don't just update your inventory because your OEM vendor says it's time. Updates sound super on paper, but one thing I’ve observed often is that not all updates are created equal.

In a time of macro-economic uncertainty, the more prudent course for most businesses is to assess their IT needs against the reality of the business. When your existing equipment can continue performing through its useful life or be put to new use, should you be pursuing new equipment purchases?

If anything, innovating with what you have and finding new uses to prep your organization on the path to tomorrow’s technology landscape gives you more bandwidth to channel your budgets (and energy) toward initiatives that propel your business forward.

Questions? Comments?

Talk to our team of expert engineers, product managers, and technicians by emailing us at experts@curvature.com

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