ISP Business News, August 9, 1999 v5 i31 pNA.
The Next Big App: Procurement ISPs Jockey For Portion Of New Bandwidth Spending.
Companies: Lynxus
Clarus Inc.
Digital Broadcast Network Corp.
Locations: United States
Electronic Collection: A55418330
RN: A55418330
Full Text COPYRIGHT 1999 Phillips Business Information, Inc.
Outsourcing is emerging as a bigger business by the day in the Internet space. E-mail isn't the only software application that businesses are outsourcing.
Two groups of ISPs that do the most outsourcing - application renters and back office connectivity providers - are registering major spikes in interest in procurement software.
Two different groups of companies are driving the hype in outsourcing. Most vocal are procurement software vendors that started partnering with ISPs to enable small businesses to rent or lease procurement applications. The second, quieter group comprises large companies that have procurement software installed and seek to slash costs by outsourcing management of the software to ISPs.
Expanding demand for both groups translates directly into more bandwidth dollars for all ISPs in the loop.
Procurement applications are among the latest fads in the corporate world. In fact, such applications are replacing more expensive proprietary software. These software packages slash and burn paperwork and man-hours, resulting in clear bottom-line savings. And that explains their popularity with corporate users. Savings from such applications are even greater when ISPs are included in the mix. For some ISPs this is becoming a very lucrative business.
Three companies dominate the market for such procurement software. They are Ariba, Commerce One and Clarus [CLRS].
Clarus is the first of the trio to engage ISPs insales of its software products. Last week, the company inked a deal with the Atlanta-based ISP Lynxus to rent its procurement software. Suwanee, Ga.-based Clarus racked up $41 million in sales last year.
"As of right now we have just 150 deployments of our software package in the United States," says Steve Hornyak, vice president of business development at Clarus. "We have identified 180,000 companies that could be potential
customers."
Getting the Clarus software via an ISP eliminates the upfront cost of buying it outright. As a package, the software isn't inexpensive. It costs around $1 million. However, rented through an ISP, it will cost anywhere between $20 and $200 per user a month, Hornyak says.
The contract with Lynxus is just the first in the line of deals that Clarus is signing with ISPs focusing on applications.
"We will do three to four additional deals in the next four to six weeks," says Hornyak.
Application service providers on Clarus' radar screen are USinternetworking [USIX], Digex [DIGX] and Interliant [INIT].
The deals will be structured under a similar pattern. ISPs will effectively get the $1 million software package for free. They sell the procurement service as a software-plus-connectivity package for a flat price. A portion of the revenues are then paid back to Clarus to cover the software cost.
"We signed a contract a couple of weeks ago, and plan to have the service in Q1 2000," says Michael Hamilton, president of Lynxus.
What makes Hamilton think that customers would buy this service from Lynxus? Among the answers is a relationship with a transaction processor Card Service Intl., which services 20,000 small merchants. Also, there's a live service that business customers buy from Lynxus - that of filtered Web access.
"Card Service has a sales staff of thousands and an existing customer base," says Hamilton. "The logical thing to do is to upsell their customer base with this new service."
The next step is to approach business customers that Lynxus has developed through its filtered Web access offering. Businesses buy filtered Web access to increase productivity by limiting employees' access to non-work-related Web sites. Lynxus has a total of 5,000 customers. The ISP hasn't priced the Clarus-based service yet.
To cope with rising infrastructure demands, Lynxus teamed up with Lucent Technologies' [LU] Network Services unit. Lynxus has engineers and a NOC of its own in Atlanta. But through Lucent, it runs POPs in nine other cities, as far north as Minneapolis and as far south as Houston.
Dbn Factor
Next, let's look on the other end of the application hosting spectrum. St. Louis, Mo.-based Digital Broadcast Network is preparing to launch its much-rumored New York facility, which promises to be the closest thing to a Fortune 500 data center in the ISP world. The launch is slated for this month.
Armed with two big facilities in St. Louis and New York, the carrier plans to solicit application hosting business from content providers, other ISPs and major corporations.
"We are working with a large utility-based Fortune 500 company that I can't name yet doing internal transaction-based procurement outsourcing," says Dina
Toothman, vice president of marketing at Dbn.
Dbn's business is different from that of Lynxus. The company doesn't seek to act as an intermediary between vendors that need a network to rent out their software. Dbn aims to provide back-end ervices for applications run by other
carriers.
"We get involved up to an OS level," says Toothman. "We have network, UNIX and NT engineers. But we don't get into PeopleSoft and ERP - that's where our expertise lies."
Dbn's average contract is three years and the revenue count is in the hundreds of thousands of dollars a month.
(Michael Hamilton, Lynxus, 404/529-9001; Dina Toothman, DBN, 314/733-3100.)
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