Tag Archives: Crosspoint Venture Partners

About 4795 days ago E-Commerce

Upstarts: ASPs

Software on the Web ASPs are coming ASAP The entire software industry is about to be turned upside down. Say good-bye to software as we know it You know the computer industry is innovating too fast when it has to start recycling its acronyms. The term ASP was once known in Webspeak as an “active server page,” referring to a Web page that’s generated at the time it’s downloaded. But the term has recently taken on another meaning, and a host of start-ups are using the idea behind it to turn the traditional, shrink-wrapped software industry on its head. The “new” ASP refers to a type of computer business called an application service provider, which offers outsourcing with an Internet twist. An ASP hosts software applications, which its customers access over the Web instead of running them on their own computers. ASPs aim to save their customers the costs and hassle of owning and managing technology, by “renting” to them whatever software they need. Rather than wrestling with a new upgrade, say, an ASP’s customers are free to focus on better things. “We tell our customers to mind their own businesses,” explains Jostein Eikeland, a 32-year-old Norwegian former rock-video and movie producer, who launched one of the first ASPs and is credited with having coined the term ASP in 1996. The exciting — and befuddling — thing about ASPs is that the software they offer can be anything under the sun, ranging from a consumer application like Microsoft’s Hotmail (a free Web-based E-mail service that the Redmond giant hosts — which made the company an ASP before the term came into vogue), to bundled office suites (spreadsheets, word processing, and so on), to complicated enterprise applications like customer-relationship management or sales-force automation. But as with any big market change, this upheaval has created a window of opportunity. Right now that window is incredibly wide. Many different kinds of companies are jumping into the ASP industry, including computer hardware and software makers (such as Sun and Microsoft), network service providers (AT&T and Qwest), Internet service providers (UUNet), and newly minted start-ups. As Forrester Research senior analyst Stacie McCullough wrote in a recent report on the ASP industry: “More than 300 vendors claim to be an ASP — each offering a different story and solution. … It’s no wonder users are confused and skeptical.” Lost amid the hype is the fact that the ASP sector, with $933 million in revenues last year, is still minuscule compared with the $74-billion software-application market. McCullough estimates that less than 1% of companies are renting their software through ASPs, though that number is projected to grow exponentially as the market swells to $11.3 billion by 2003. What follows is a selection of the variety of ways start-ups are joining the ASP gold rush. The ASP department store Jostein Eikeland happened on the idea of a one-stop, soup-to-nuts ASP in 1995 — the equivalent of ASP ancient history. Back then he was a 27-year-old working in sales for a systems integrator, which was having a bear of a time completing a massive software installation for a Norwegian bank. Eikeland’s hunt for a solution led him to Citrix, whose technology allowed the bank’s desktop applications to run from a centralized server managed remotely. It struck Eikeland that “this would be the new wave of outsourcing.” Five years, some 200 employees, and some $50 million in funding later, Eikeland’s company, TeleComputing Inc., based in Fort Lauderdale, Fla., is one of the leaders in the ASP field. TeleComputing has more than 100 customers and hosts hundreds of applications, including industry-specific systems, such as those for car dealerships and law firms, as well as business-function-specific software, for operations like accounting or human-resources management. Customers pay an average of $350 per month per user for a three- to five-year contract. Given that so many companies are reinventing themselves to jump onto the ASP bandwagon, Eikeland is particularly proud to be the bandwagon. “Every revenue dollar that we have has come solely from ASP services,” he says. Enabling other ASPs One of the trickier aspects of launching an ASP is figuring out how to charge for your services. Pricing models in the industry are almost as numerous as the applications themselves. Many companies even offer customers a choice of how they would like to pay — by subscriber, by transaction, or by number of ports or concurrent users. So billing can quickly become an ASP entrepreneur’s biggest nightmare. And as Scott Swartz, CEO of MetraTech, likes to say, “without billing, it’s just a hobby.” Swartz, who in a former life helped Fortune 500 companies develop their accounts-receivable systems, entered the ASP market almost serendipitously, in late 1997, when he started MetraTech to sell a “next-generation Web-based billing system.” His plan was to build, host, and sell his system piece by piece to customers — largely telecommunications companies — on an as-needed basis. “I can’t tell you I started off going after the ASP market,” he readily concedes. Swartz quickly realized that MetraTech’s flexible billing software could help ASPs of all sizes — from “one person in a shoe box to a tier-one telecom company” — price their services. “We ASP to the ASPs, allowing them to do their ASPing,” he says with a straight face. The privately funded Waltham, Mass., company began selling its products (ranging in price from $20,000 to $1.5 million) in mid-December and expects to achieve revenues of $6 million this year. Zeroing in on one industry AristaSoft’s story sounds like the quintessential Silicon Valley soap-opera plot. Venture capitalist named Rich issues $10-million challenge in Upside magazine to find the person who can deliver enterprise resource planning (ERP) software — which manufacturers use to integrate all their internal applications — over high-speed phone lines. Indian technologist — call him Lucky — who has written a white paper on software as a shared rental service, reads Upside article and sends Rich E-mail. Rich (last name Shapero), managing partner of Crosspoint Venture Partners, meets with Lucky (a.k.a. Amar “Lucky” Lakhtakia). Three months later, in January 1999, Lucky is in business in an ASP start-up positioning itself as the IT department for high-tech manufacturers, with an enviable $5 million in the bank and a top-notch CEO. Ten months later Lucky’s company, AristaSoft, in Mountain View, Calif., has $30 million more in the bank, 60 employees, and its first live customer, a Silicon Valley high-tech manufacturing start-up. In a dramatic illustration of the economies wrought by ASPs, AristaSoft implemented in 60 days what could have taken its customer up to a year to do on its own: namely, install a complete finance, distribution-and-logistics, and manufacturing software system, which AristaSoft now hosts, services, and maintains. AristaSoft CEO Drew Hoffman says that the company will eventually host 30 applications (“light, heavy, and medium”), for which it will charge customers from $5,000 to $30,000 a month, depending on the application and the number of users. Software for the masses Most players in the ASP space are going after the business-to-business sector of the marketplace, but not Cameron Chell, founder of C Me Run, a new consumer-oriented ASP service company that incorporated last November. At the age of 31, Chell is an industry veteran and the founding president of the ASP Industry Consortium. In 1996 he launched a business-to-business ASP. Today that company, the publicly traded FutureLink Distribution Corp., in San Francisco, has a market capitalization in excess of $1 billion. Now Chell has teamed up with four FutureLink colleagues — as well as Warren Talbot, who started up Microsoft’s ASP licensing program — to tackle what the founders think is an overlooked sector of the ASP boom: brand-name software for consumers. C Me Run will strike licensing deals with well-known software developers (Microsoft comes to mind, but the company is also in discussions with Corel, Lotus, and several game and educational developers, among others) and then host their applications for Internet service providers, portals, and telecom companies. In turn, these businesses will offer those bundled programs to their subscribers for monthly fees (ranging in price from free to $15, depending on the number and type of programs). By serving the AOLs, MSNs, Qwests, and Yahoos of the world (the company is also in discussions with the second-largest ISP in Europe), C Me Run aims to alleviate what Talbot zealously describes as “the biggest civil-rights problem of the 21st century”: access to information for general consumers. Q&A Mining for ASP Gold Phil Wainewright, founder and managing editor of ASPnews.com, likens himself to “the guy who was already there selling the maps when the prospectors started turning up at the gold fields.” Wainewright has tracked the emerging ASP sector full-time since October 1998, when he established his Web site to be “the source for ASP news and analysis.” He recently spoke with contributing writer Alessandra Bianchi about the ASP gold rush. Inc.: It seems as though everyone and his brother are calling themselves an ASP these days. How would you define an ASP? Wainewright: People use the term ASP to mean many things, but from an end user’s point of view, the concept is very straightforward — an ASP is someone that operates software so that you don’t have to. ASPs take care of all the complexity of getting it working in the first place and all the worry of keeping it working from then on. An ASP does all of that on its own premises and lets users access the applications across a data link, usually the Internet. Inc.: Outsourcing is not a new idea. What makes ASPs different, and why have they suddenly become a hot opportunity? Wainewright: ASPs spread the cost of designing their solution across several customers who all take pretty much the same recipe. As time goes on, that cost-sharing element is going to really drive prices way down, much more than most people currently expect. Inc.: What about the broader business implications? Is the traditional software industry dead, as many headlines have announced? Wainewright: People will continue to buy software but will get an increasing proportion of it via subscription or on a pay-as-you-go basis. The software industry believes the ASP model will make software more popular because it makes it easier to use, and with a subscription-based payment method, it costs less to start using it. But the established players are also worried it could mean a short-term loss of revenues while they change from the purchase model, where they get all their money up front, to a subscription model that spreads the revenue stream out over time. The more serious threat to traditional software players is over the longer term because new generations of software are much better suited to the ASP model than today’s leading packages are. Inc.: What are some of the smarter new ASP players doing to compete against the established giants who are also entering the ASP arena? Wainewright: Start-ups are much better positioned than the established giants, who don’t yet realize how much they’re going to have to change to adapt to the ASP model. One of the biggest differences is that ASPs sell a service, whereas the computer industry has always focused on product sales. Building a sustained relationship with a customer takes a completely different mind-set. For instance, ASPs can monitor how customers use the software, and if they spot something that needs changing, they can do it right away. Please e-mail your comments to editors@inc.com.

About 4826 days ago Data Security

It’s Midnight. Do You Know Where Your Tech Support Is?

Resources Finally, a new breed of tech consultants provide affordable, timely help to growing businesses No computer comes worry free. Despite all the advances in computers, software, and networks, our wired universe, sadly, often becomes tangled. And since the pace of business has revved up to Internet speed, random crashes and network traffic jams are becoming more taxing than ever. Of course, if your budget has room for a full-time tech-support team, kinks like these are mere headaches. Pop an Advil and call the help desk. But what about the smaller and solo businesses that can’t afford to devote precious resources to computer support? What about people like Andy Schilling? Schilling, who is president of Tangent Fund Management LLC, also wears the hat of “technology decision maker” at the private-equity-fund -management firm in San Francisco. Since Schilling joined the 15-employee company 11 years ago, Tangent’s computer arsenal has grown in much the same way that most other small companies’ do — one PC at a time, when a new employee is hired or a creaky computer dies. As Schilling bought new computers, he’d pass the old ones down the food chain. Tangent chose its tech support, too, as most small companies do — -by proximity. When the company decided to network its PCs, Tangent hired a local computer-consulting outfit, which installed, configured, and maintained the new network. When the business decided to add more PCs to the mix, though, it went to a local branch of a computer chain that provided basic maintenance for its machines. That worked fine — until the branch went bankrupt. So Schilling figured he’d devote more of his own time to the company’s tech decisions. But since his expertise is in finance — not in computers — he found himself at a disadvantage. Back in 1990, Schilling had purchased what he thought would be adequate hardware and software to network the office. But as time went by and Tangent added more users, the network constantly crashed. So he brought in new consultants, who advised installing an Ethernet local area network along with more-powerful computers. “We had to rip the whole thing up to put in the Ethernet,” says Schilling. Then he hired another local computer consultant just to wire the LAN, which added to the bill. “It would have been cheaper to install the Ethernet LAN from the beginning,” he says. For computer emergencies, Schilling depended on the same consulting company that had advised him to install the Ethernet network. Although he found its service useful, Schilling says he had to wait for the consultants to respond to his pages and then to travel to his site. Meanwhile, Tangent waited in limbo. “When they got here later in the day, the clock was ticking,” he said. “I kept thinking, ‘How many hundreds of dollars would it take to get our printers to print?’ It gets expensive.” Sometimes very expensive, says Mark Margevicius, a senior research analyst at the GartnerGroup. The average large company spends between $8,000 and $10,000 a year just to install, maintain, and support one corporate PC. Those costs are even higher, he says, for small companies, which often can’t afford an in-house tech staff. As a result, they suffer from significant downtime when faced with a computer glitch. Schilling was hardly alone in his frustration; most small businesses have never had much in-house IT help. According to Eric Klein, a senior analyst at the Yankee Group, 53% of networked very small businesses — those with between 2 and 19 employees — don’t have any full-time tech staff at all. Of networked companies with 20 to 99 employees, only 32% have a full-time IT staff. “The bottom line is that businesses are continuing to adapt to PCs and the Internet. The fact that they don’t have a tech staff points to an obvious hole in their support system,” Klein says. Moreover, because of the high hourly rates of most computer consultants (between $40 and $70 for those who offer both time and materials) and the time spent waiting on the phone for help from software and hardware vendors, many small companies don’t seek outside IT help unless they have a major crisis on their hands. Fortunately for companies like Tangent, a growing band of support warriors have spotted this hole and are rushing to fill it with affordable, timely help. By providing standard sets of PCs, software, and networking products — and, in some cases, by requiring lengthy subscriptions — these new businesses can keep their costs so low that even soloists and two- and three-employee companies can have full-service tech support at their beck and call. Some of these technology soldiers configure, install, and regularly monitor individual companies’ systems in an effort to spot problems before they turn into crises. Just call it Fortune 500 service for mom-and-pop shops. CenterBeam When CenterBeam Inc., a start-up based in Santa Clara, Calif., approached Schilling, last July, the Tangent president was grappling with yet another set of tough technology decisions. He was ready to set up an officewide E-mail system and scrap the multiple E-mail accounts that Tangent’s employees had been using to communicate. And he was thinking about registering a domain name and putting up a company Web site. CenterBeam not only offered him E-mail and Internet access but also promised new PCs with 128MB of memory and 17-inch monitors. The company would also provide printers, a wireless LAN, a local server, a software suite that included Microsoft Office 2000, a professionally managed firewall, nightly data backup, and 24-hour tech support. All this would cost Schilling only about $165 a month per user. Because CenterBeam bills its customers on a subscription basis, those costs would be fixed for three years — the life of the contract — no matter how much tech support Tangent might need each month. Some of these new businesses can keep theirs costs so low that even soloists and two- and three-employee companies can have full-service tech support at their beck and call. Just call it Fortune 500 service for mom-and-pop shops. Schilling scribbled out a back-of-the-envelope cost comparison between CenterBeam’s tech services and the system he had pieced together himself. CenterBeam was only slightly less expensive. However, Schilling found the notion of going with a service like CenterBeam attractive because of its consistency. “Now I know what the budget is,” he explains. “Before, it would go in cycles. I’d have some big problem and would have to get new software or buy new PCs. This is a lot more predictable.” CenterBeam cofounder Sheldon Laube hopes his service’s predictability and reliability will speak to small-business owners. “The whole idea is to not ever worry again about this stuff,” he says. As chief technology officer at Novell Inc. and cofounder and CTO of USWeb Corp. (now USWeb/CKS), a San Francisco-based E-commerce consulting business, Laube spent much of his career worrying about technology. And he’s still a worrywart: he and the CenterBeam staff regularly fuss over the health of their customers’ PCs. Laube’s employees use the Internet to peek into the inner workings of their customers’ computers across the country. They hunt remotely for potential problems — and, using the Internet, they upgrade customers’ software without leaving their desks. But even the folks at CenterBeam can’t solve every problem, like the mystery glitch that murdered a PC in Tangent’s accounting department. “One PC just died,” Schilling remembers. No bother. Schilling opened the storage closet and grabbed his “emergency PC,” an extra machine that had come with the CenterBeam package. Schilling called CenterBeam’s office and had all the old computer’s files transferred to the new machine. Because CenterBeam had backed up Tangent’s data nightly, transferring the information was a breeze. “The new computer was up and running in 45 minutes,” Schilling says. “Things like this were a real headache before.” Now headache free, Schilling liked the service so much that at press time he gave CenterBeam a ringing endorsement: his company invested an undisclosed sum in the computer start-up’s second round of financing. Everdream CenterBeam isn’t the only full-service, subscription-based tech provider vying for the small-business market. Everdream Corp., based in Mountain View, Calif., is aiming at soloists and small and midsize companies that would normally purchase inexpensive, so-called white-box computers from local resellers. Everdream manufactures and brands its own PCs before shipping them off to customers, who end up paying about $150 a month per computer. Everdream, like CenterBeam, provides software, hardware, and networking components, as well as Internet access, Web hosting, nightly backup, and round-the-clock online and telephone IT support. In addition, Everdream builds into its machines a simple, commonsense security feature: it divides the hard drives into two parts in an attempt to safeguard business applications from viruses brought in over the Web. One part of the hard drive houses business applications, and the other plays home to programs and games that users download. It would seem that tech-savvy companies — especially new dot-coms — would hardly need outside tech support. Not so, says the Everdream team, which is betting that many high-tech start-ups would rather develop their own technology than worry about day-to-day glitches. Such is the case of Tom Jones. As CEO of Stratasource Inc., a start-up based in Menlo Park, Calif., that provides automated systems management, Jones wanted his software engineers to spend all their time creating Stratasource products. Sure, the engineers could troubleshoot their own PCs. But the rest of the staff would still need occasional help. Last October, Jones signed up as a beta tester for one of Everdream’s PCs before committing his support staff to the system. This January he became a paying customer. While testing the gear, he hadn’t needed much support, but when he did need support, he got it right away. “I was working in Microsoft Word and just got hung up,” Jones recalls. When he called Everdream, a technician “entered” his computer remotely — so that both Jones and the technician were looking at Jones’s screen — and quickly showed the CEO how to solve the problem. That said, there are a few drawbacks to CenterBeam and Everdream’s services. Both companies are subscription based and require long-term contracts. Everdream’s customers are obligated for 30 months — a subscription only slightly shorter than CenterBeam’s aforementioned three-year deal. And then there’s the issue of privacy. Both companies tout nightly data-backup services and the ability to enter any subscribed PC through the Internet with permission. Schilling says that although allowing an outsider full access to his files is troubling, the trade-offs are worth it. “We have more up-to-date methods of communication,” he says. “And it’s clear to me that CenterBeam can provide us with much better firewalls than what we were going to be able to afford on our own.” Finally, these kinds of standard services may not fill the needs of small-business owners who require custom configurations or who are devoted to particular brands of computers not offered by the service provider. And they certainly don’t erase the need for customers to ask for written “service-level agreements,” which describe the time frames in which consultants answer service calls, deliver hardware and software, upgrade equipment, and solve problems. More to Come CenterBeam and Everdream both call California home and at press time had only just begun to expand nationally. By the time these pioneers provide services nationwide, they could be facing fierce competition from large computer companies like Micron Technology Inc., which already offers a subscription service for small businesses. Meanwhile, a potential rival, Dell Computer, recently invested in CenterBeam’s second round of financing, and CenterBeam has an agreement with Dell to supply its customers with the computer manufacturer’s PCs. Competition, of course, usually brings lower prices and better-quality service, which is good news for small companies that until now were unable to afford the kinds of services that their larger counterparts benefited from. For people like Andy Schilling, Tangent’s formerly frustrated president, these new services couldn’t have arrived on the scene soon enough. Anne Marie Borrego is a reporter at Inc. The Nitty-Gritty Company: CenterBeam Inc. Location: Santa Clara, Calif. Founders: Sheldon Laube, CEO, former CTO of USWeb/CKS; Glenn Ricart, CTO, former CTO of Novell; Marc Epstein, executive vice-president of product management and development, former CTO of Quarterdeck; Thomas Twietmeyer, CFO, former Autodesk executive Employees: 70 Funding: $55 million in equity financing from Crosspoint Venture Partners, Accel Partners, Microsoft Corp., USWeb/CKS, New Enterprise Associates, Intel Corp., Dell Computer Corp., Impact Venture Partners, and Tangent Fund Management LLC Buzz: $165 a month per user gets you Dell PCs, printers, high-speed Internet access, E-mail, a wireless LAN, Microsoft Office 2000, regular software upgrades, firewall protection, and 24-hour tech support. Dell recently announced an investment in the company, complementing a deal to supply CenterBeam customers with its own PCs. Fine print: You have to make a three-year commitment to the service. If you’re a hot dot-com, three years probably feels like a lifetime. Also, the CenterBeam monthly cost per user of $165 only applies to companies that need 10 or more machines. Prices are higher for companies with fewer users. Finally, you have to feel comfortable letting other eyes peer into your hard drives. Company: Everdream Corp. Location: Mountain View, Calif. Founders: Russell Rive, CTO, and Lyndon Rive, vice-president of partnership development. The brothers Rive hail from the Republic of South Africa, where Lyndon established a successful catalog business when he was 17. Before founding Everdream with Lyndon, Russell picked up computer and sales experience at Zip2 Corp., an online city guide that Compaq Computer Corp. snapped up last year for about $341 million. Employees: 70 Funding: $18 million from Canaan Partners, Draper Fisher Jurvetson, Ricoh Silicon Valley, and others. Investors include Jack Kuehler, former president and vice-chairman of IBM; and Stanford University. Buzz: Like CenterBeam, Everdream operates on a subscription basis. Customers pay about $150 a month for their Everdream-branded computer, 24-hour IT support, a choice of dial-up or DSL Internet and E-mail service, business applications like Microsoft Office, nightly backup, online training courses, and virus protection. Everdream splits the hard drive into two parts — one “locked down” part that handles the business-critical applications and another that’s open to Internet downloads. Fine print: As with CenterBeam, Everdream’s technicians will have access, albeit limited, to your hard drives. You have to sign up for a 30-month contract — that is, if you can get one. The company hasn’t rolled out nationally just yet but plans to offer service outside California by the second quarter of 2000.

About 4855 days ago Telecom and Wireless

Myth 3: Smart Money Makes You Smart

REALITY CHECK: Smart money doesn’t come unless you’re already smart Click here for the word from the experts Then Cliff Young was getting ready to launch his own Internet service provider, he says, “I was looking for capital, like everybody else.” He was also looking for the right investors. Smart investors. Young, a former real estate developer, thought the right venture-capital firm would provide just the expertise he needed. It was 1995, and venture firms pouring money into Internet start-ups were priming their fledgling investments with insider advice and powerful contacts. “It was well known that VCs invested in high-tech start-ups and added a ton of value,” he says. Young drafted a detailed business plan. By the beginning of 1996, it was making the rounds. “I contacted a bunch of places,” he recalls. “But venture capitalists receive thousands of business plans a week. It’s very difficult to get their attention if you’re not already on your way. With just my business plan in hand, it was hard to get even a return phone call.” Elite firms like Benchmark Capital and Accel Partners never responded to Young’s persistent queries. Even middleweight firms ignored him. “The only person who ever returned my call was a research associate at Hambrecht & Quist,” Young says. “He said it wasn’t in their area of interest.” From that point on, Young decided to forgo the extra value VCs could bring, and build his company — InternetConnect Inc. — using any cash he could get. If he could grow the Marina del Rey, Calif., business somehow, it would become more palatable to smart VCs and he could approach them again. Young hooked up with a well-connected vice-president of finance who helped to raise $1.5 million from 65 “completely passive” angel investors. The early, undercapitalized months of the company were difficult for Young, who felt hamstrung by his lack of resources. But low cash had a benefit: it forced him to concentrate on the most underserved segment of the ISP market (selling broadband service to small companies), which turned out to be very profitable. “One of the benefits of going a bit slower in the beginning is that you don’t blow all your powder before you know your business,” he says. “A lot of companies in my industry got funding and grew quickly and then realized that their margins were too low. They ended up going out of business.” InternetConnect did well, posting revenues of $500,000 in 1998. In April 1999 the smart money finally came a-callin’. Young was contacted by Bob Hoff of Crosspoint Venture Partners, in Irvine, Calif., and Matt Mochary of Spectrum Equity Investors, in Menlo Park, Calif. Young met first with Mochary, and at the end of the meeting he had a term sheet from Spectrum. Crosspoint also invested. The two firms gave Young $20 million, and Hoff helped him recruit an experienced CEO. “This gives us the opportunity to really turn on the gas,” Young exults. “Venture firms in Silicon Valley don’t fund ideas; they fund people,” says Mochary. “If you aren’t a person the firm knows as someone who has already created a whole lot of value for them or somebody they know, then you’re unlikely to get funded. If you do have a good idea, then build, it and companies like mine will come to you.” THE 7 MYTHS OF THE WEB ECONOMY Myth 1: Building a Web site is easy The word from the experts Myth 2: Traffic will make you rich The word from the experts Myth 3: Smart money makes you smart The word from the experts Myth 4: Razzle-dazzle makes Web sites great The word from the experts Myth 5: Brand is everything The word from the experts Myth 6: Wild ads make Web stars The word from the experts Myth 7: Community, community, community The word from the experts Plus: Tales my guru told me Dispatches from the Web economy Back to Intro, ” I Was Seduced by the Web Economy”