Rick,
What's wrong with the following analysis?
1) There are lots of Y2K factory service providers, publicly and privately owned. Business is slow and all are competing for any contracts they can get. It's time to bid low just to win a contract. And since the actual service is quick (low operating expenses) vendors can afford to bid very low. And they will because unless you win the contract, you lost it. Result: low profits.
2) In a labor intensive task (such as cabinet making) where a job takes days or weeks to complete, a rush of new potential customers almost guarantees all competing vendors will have lots of work and there is no need to competitively bid low. However, with regard to Y2K factories, the service is performed very quickly and so competing vendors will not be booked solid. Ergo, competitive bidding will occur, once again. Result: low profits.
3) Factories have made teaming agreements with prime contractors who, if they had any common sense at all, would also have teaming agreements with many other Y2K factories. Why? So they can get the factories to competitively bid for the job. Result: big profits for the prime contractor, low profits for the factories.
4) Customers are likely to go to those firms they feel psychologically secure about giving their code to -- those firms whose names are familiar: IBM, EDS, CA, KEA, etc. To get their own foothold for direct orders from customers, small Y2K firms need to advertise themselves. Repeatedly. Those that do have a nice back backlog (>$30M). Those that don't, well ... don't. But advertising is very expensive and as I read the books, Forecross does not have a sizeable advertising budget. In fact, I see no ads by Forecross anywhere. And let's face it, FRXX isn't going to make it big with income from just a few trade shows.
5) In light of the above analysis, investors have made it very clear that they are not interested in one-trick-ponies. Even if it is true that Forecross has a strong future beyond Y2K (which I have no clear evidence one way or the other), as long as the market perceives it to have a limited future, then FRXX won't go anywhere. So what is being done to break that perception? Forget reciting reality, I'm talking *perception*, and overcoming it requires aggressive measures. I just don't see any from Forecross. Clearly, their quarterly reports haven't been very convincing.
Summary: Is it wiser to place your bets on Y2K factories or on their prime contractors? If on factories, why on Forecross? Due to the rapid nature of the service provided, they will win most of the contracts if they can afford to offer the lowest bid. But how low, 3 cents per line? If that's what it takes to win, then that's what it takes. If the customer pays $1 per line to the prime and the factory gets only pennies on the dollar, then guess who keeps almost all the profit? (Does anyone really think this potential windfall has been ignored by the primes?) So I ask again, is it wiser to place your bets on Y2K factories or on their teaming partners, the prime contractors?
- Mark Jurik |
