Just started following this company and industry as it appears to have huge potential - to those that can deliver. Article in Canada's leading business mag
canbus.com
Still buying software?
For a growing number of companies, leasing it online is the new
way to go
By Charles Mandel | Oct. 8, 1999
Three years ago, Cameron Chell thought he had the proverbial "better
idea." Instead of selling software, why not use the Web's growing
ubiquity to offer users the opportunity to lease software online?
Upgrading would be instantaneous, maintenance and support would be
minimal and users would enjoy greater flexibility. Yet when it came to
selling investors on the concept of his new Calgary-based company,
FutureLink Distribution Corp., Chell got nowhere. "People looked at me
like I had a hole in my head," he laughs today. "They thought this was the
stupidest thing in the world."
How things have changed. In 1998, Chell resorted to the reverse
takeover of a shell company on the National Association of Securities
Dealers (NASD) bulletin board in order to get a stock listing (OTC:
FLNK), create a profile and help raise money. Now his company is
preparing to do a second share offering on NASD in January. The
difference? This time out, it aims to raise upwards of US$100 million.
Talk about vindication. The market Chell foresaw in 1996 has become
the flavor of 1999. Within the past year, industry giants such as IBM
Corp., Oracle Corp. and, most recently, Sun Microsystems Inc., have all
embraced the "apps on tap" concept. According to researchers
International Data Corp. (Canada) Ltd. (IDC), the Canadian application
service provider (ASP) market will be worth a modest $13 million this
year, growing to more than $111 million by 2003. Worldwide, IDC
predicts the high-end ASP market will grow from $150 million to $2
billion during the same period.
All this promise has created new possibilities for FutureLink. Since
posting an EBITDA loss of $1.7 million on fiscal 1998 revenue of $2.4
million, the company announced a merger with Micro Visions Inc., a US
software reseller and server manager, and, pending shareholder approval
(a vote was scheduled for Sept. 23), plans to move its head office to
Micro Visions' base in Irvine, Calif. It also brought on Philip Ladouceur,
founding chairman and former CEO of telecom success story MetroNet
Communications Corp., to act as executive chairman and coordinate a
financial strategy. Futurelink's share price surged on news of the Micro
Visions deal this past June, jumping from about US$2 to the US$7 to
US$9 range. Since then, FutureLink, which specializes in leasing a variety
of brand-name software applications to small and medium-sized
businesses, now has more than 200 customers and, following another
acquisition in early September, about 285 employees.
Despite the heady prospects, concerns about price, speed, reliability,
practicality and security mean it's still not clear which models and markets
are likely to work best. Consequently, many ASPs are getting in slowly.
In Canada, Oracle is easing into the market with 10 pilot projects, while
IBM is also taking a limited approach. Sun's recent announcement looks
more aggressive, however. Starting early next year, it says it intends to
offer a free suite of office software products from its newly acquired Star
Division Corp. through a Web-based portal.
FutureLink, though better established, still has clients who are testing the
waters. Calgary's Westburne Supply Alberta, for example, is currently
testing Onyx customer relationship management software online. Betty
Anne Cherrington, Westburne's systems and operations manager, reports
no downtime and a responsive help desk, but says the applications could
run faster. Westburne will decide shortly whether to stick with the
ASP—a decision that will be based chiefly on whether it likes the
software.
Chell, who temporarily stepped down as CEO for personal reasons on
Aug. 30 (he hopes to return in October; Ladoucer has the job in the
interim), says he isn't worried about all the new competition. He believes
it only validates what FutureLink is doing. But there's no getting around
the fact that it also means the company is still grappling with the same
problem Chell started with in 1996—persuading others to get on board.
This time out, though, it's not a matter of proving the idea works—but
that FutureLink is the one to pull it off. |
