Futurelink ready to flick on
the revenue switch
By Peter D. Henig
Redherring.com
May 25, 1999
"The world's first utility computing company." That's
how Canada-based Futurelink (OTC BB: FLNK), an
application service provider, proudly trumpets its
emerging ASP business. It reinforces the theme with
pictures of a light switch, a phone jack, and a
thermostat.
If it can deliver the goods, it's the
right message to be sending at the
right time. Industry experts
predict a future where computing
power -- which will include
everything from small business
accounting applications to large
enterprise resource solutions --
can be turned on as easily as the
lights in your house or the water
from of your faucet.
ASPs deploy, host, manage, and lease packaged
application software to customers from centrally
managed data centers. Customers access the
applications through a browser. The ASP business has
huge potential but has yet to reach the inflection point
for growth.
"1999 will be a turning point as
ASPs hit the streets with their
service offerings and the market
responds," says Meredith
McCarty, senior analyst with
research firm IDC's Internet
Services research program. "After
1999, we'll have a better idea
about how well and how fast the
ASP concept will be accepted."
A BOOM AROUND THE CORNER
The overall outsourcing market is
booming. Worldwide spending on outsourcing services
reached $89 billion in 1997 and should hit $142 billion
by 2002, according to IDC. The niche market for
ASP spending has yet to catch fire, however.
IDC says it expects spending on services offered by
ASPs to reach $150.4 million worldwide this year and
$2 billion by 2003, representing a 91 percent
four-year compound annual growth rate.
Cameron Chell, president and CEO of Futurelink, is
hoping a good portion of that growth will fall into
FutureLink's lap.
Although ASPs such as USinternetworking (Nasdaq:
USIX), Corio, ServiceNet, and World Technology
Service are already out there pounding the pavement
for customers, and giants such as IBM Global Services
(NYSE: IBM), Electronic Data Systems (NYSE:
EDS), USWeb/CKS (Nasdaq: USWB), and Oracle
Online (Nasdaq: ORCL) are going after the top end of
the market, Futurelink thinks it has a head start.
"All of our growth will be coming from the ASP side of
our business," says Mr. Chell. He claims that he's been
pounding the table on behalf of the "computer utility"
business model for years, "back when people thought I
was crazy."
Now, Futurelink conservatively estimates it can do
$11 million in total revenue for 1999, with up to $4
million coming from ASP sales. That doesn't even
include new business coming in the door through
further acquisitions. Futurelink acquired Sysgold, an
Alberta-based outsourcing company, last year.
Sources claim that the company is now also looking
very hard at a California-based systems integrator with
over 1,300 clients that Futurelink can sell its services
into, potentially providing a huge boon to revenue.
Not that challenges don't exist. "The high-end ASP
market is an emerging market with few customers to
date," says Ms. McCarty.
LIGHTING A FIRE
Besides looking for customers, Futurelink is also on
the prowl to attract investors, both retail and
institutional, as it seeks to raise its profile on the public
equity markets. Futurelink backed into the public
markets in 1997 by buying into a shell corporation that
was already listed as an over-the-counter (OTC)
stock.
"There was no other way we could get financing," says
Mr. Chell. "There was no venture capital money in
Canada and no market for ASPs. ... If we went
looking for VC money today, we could command a
much higher valuation."
As it stands now, Futurelink trades at just over a buck,
with a market cap of less than $100 million. By
comparison, USinternetworking, a competitor that
targets the higher end of the business -- Futurelink's
target market is companies with 10 to 10,000
employees -- took the more traditional route straight
into a high-profile IPO. As a result, USi currently
enjoys a valuation of $1.3 billion.
But Futurelink has a plan. With an announced 1-for-5
reverse stock split, $8 million in recent financing from
Commonwealth Associates, and a secondary offering
scheduled for the fall -- "which will realistically be our
IPO," says Mr. Chell -- this small company is ready to
hit the high-tech big leagues.
As a sign that investors may have already discovered
Futurelink's unlocked potential, the company's CFO,
Raghu Kilambi, notes that there are more Futurelink
postings on Raging Bull's investor message boards than
there are postings for Amazon.com (Nasdaq: AMZN).
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