Another interesting RB post about FLNK.
By: davidrmo
Reply To: None
Saturday, 13 Nov 1999 at 5:10 PM EST
Post # of 9918
A week-old article in the Orange County Register.
Another item I didn't see mentioned last week. It's almost a week old, but it was an exclusive on FLNK and (I think) worth
noting.
I especially like the title.
David
Irvine, Calif.-Based FutureLink Poised to Become Software-Rental Giant
Sometimes, this is how your business's new software works after you first install it: It doesn't.
After clicking and dragging files, waiting on hold for the hapless in-house tech support, then listening to 14 replays of Michael
Bolton muzak on the toll-free customer-service line, you learn you need version 5.0, not 4.0. So, a hefty investment later, you
reboot and try it again. And it still doesn't work.
FutureLink Corp. wants to take that hassle off your hands, essentially by renting software to companies over the Internet and
doing the installation, upgrading and maintenance. The little-known company -- formerly based in Calgary, Alberta, and now
officially headquartered in Irvine -- is an Application Service Provider, or ASP in the industry jargon.
In plain English, FutureLink promises to do all your techno-geek work for you. Many experts and analysts think ASPs are the
Next Big Thing in the computer world, changing the way software is sold. Instead of buying disks in boxes, companies will rent
programs for a monthly fee.
"Very simply put, they take away customers' pain," said William Dering, an analyst with C.E. Unterberg Towbin who has done
some of the first stock research on ASPs.
FutureLink is one of a handful of players in the fledgling ASP market. Perhaps it's not surprising, then, that FutureLink's stock
price has increased 733 percent this year.
In June, FutureLink acquired Micro Visions in Irvine, the leading reseller of Citrix Systems' software, which enables ASPs to
deliver applications over the Internet or on a dedicated phone line.
The company acquired a United States address as part of the deal and has since reincorporated as a domestic firm.
It also picked up Micro's founder, Glen Holmes, who is now president and chief operating officer.
Since the acquisition of Micro Visions and its Citrix technology, FutureLink has only picked up speed. The company just
received $ 50million in a round of financing led by the venture capital firm Pequot Capital Management. Philip Ladouceur --
formerly the head of a Canadian telecom provider sold to AT&T for about $ 4 billion -- has agreed to run FutureLink full-time
as chief executive now that he has served a year on the board of directors.
The stock has jumped in response to the purchase and the $ 50 million vote of confidence. FutureLink shares, which are
traded through Nasdaq among its small Bulletin Board stocks, have risen from a low of $ 1.21 per share to a close of $ 21.94
on Friday.
Aside from investors, FutureLink has attracted some big-name believers. Software giant Microsoft Corp. and network
equipment maker Cisco Systems Inc. named the company as one of the participants in their Hosted Applications Initiative.
The agreement will give select ASPs a standard technology to use in delivering software to their clients.
Ladouceur promises even more in the future.
"It's kind of like being alone at the starting line," said Ladouceur, a 57-year-old Montreal native who recently relocated to
Orange County.
Ladouceur was born in Canada and has worked for major U.S. corporations including GTE, which makes him a sought-after
executive on both sides of the border. "Americans take more risks, and they get the higher returns that go along with them," he
said of the differences in the business climate between his two homes. "Canadians tend to come in later and follow, once the
business models are established."
Ladouceur said he chose FutureLink because it gave him a chance to start from scratch.
Software companies, Ladouceur said, "are good at designing solutions, but they're not in the delivery business."
That's where FutureLink comes in. Ladouceur said the company wants to provide customer service that doesn't come
wrapped in the package with the installation disks.
That's attractive to a lot of businesses, Dering said.
"You're an end user: All you want to do is click on your computer and begin computing," he said. "You don't want to have to
deal with all the set-up and other stuff."
That kind of customer service also offers attractive returns, Dering added. Economies of scale in the computer business favor
ASPs' profit margins, he said.
"Think of it this way: you're a midsize business, and you need an Oracle administrator to run your applications," he said. "Now
even a mediocre (Oracle administrator) will cost you $ 250,000 a year, and he's got just the one client to manage. ... (But) an
ASP can give that guy six customers a day to manage."
FutureLink is focused on small to midsize businesses. Ladouceur said the company can serve up software over the Internet to
anywhere from 10 to 1,000 computers at a single business, often within 24 hours of the customer's phone call.
"We have the mandate from our board of directors to become a global company," Ladouceur said. FutureLink is planning
expansion efforts overseas in Britain and Europe now.
FutureLink has a lot to prove yet, however. It lost $ 11.3 million in the quarter ended June 30 and lost $ 14.4 million for the first
six months of 1999. It more than doubled its operating deficit in that quarter to $ 21.6 million. (The company has not yet
released earnings for the quarter ended Sept. 30.)
And, Dering cautions, in a market this young, anything could happen. FutureLink is well ahead of the pack now, he said, but
that could change if a bigger player decides to jump into the fray.
"You always run the risk that somebody else, somebody really big, could come in and change everything," Dering said.
FutureLink also has to make some hefty investments in infrastructure. An ASP requires a lot of computer servers, dedicated
lines and network space to work, all of which require many upfront dollars. Shouldering the heavy lifting of the geek-work also
means shouldering the costs -- which could add up to losses for FutureLink even as its revenue grows.
One other concern ASPs face: At some point, software companies might feel that the rental-delivery system could cut into
regular sales. All it would take to sink ASPs is a handful of major software makers refusing to license applications to them.
Ladouceur doesn't foresee that happening, however. He thinks software makers won't mind giving up some "incremental"
profits that they might lose to ASPs. And this week's agreement with Microsoft seems to bear him out.
While aware of the possible downside of ASPs, Ladouceur is far more excited about the potential growth, which seems more
immediate. There's a lot of work to do, he concedes, but he believes it will pay off.
"Six months from now, everything could change," he said. "There could be a lot more competition. We've just got to run as fast
as we can while we're the only ones out there."
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