>>A WALL STREET JOURNAL News Roundup
As the Under the Radar feature nears its first birthday we decided to take another look at some of the emerging companies we have profiled. Some have turned into stock-market hits, with soaring valuations. At least one has been bought outright. Yet a few are struggling to find their way in the hypercompetitive technology market. Here are some snapshots:
<Picture: Under the Radar>
Robert Pizzo
Talk about the right move: Last February, entrepreneurs Todd Wagner and Mark Cuban reluctantly acknowledged they were considering a public offering for their small Dallas company, Audionet Inc., that specialized in putting radio broadcasts online. By June, they had changed the company's name to Broadcast.com to reflect the inclusion of TV broadcasts and other video services.
When they finally issued stock publicly on July 17, investor demand was stronger than Wall Street had ever seen. Broadcast.com's price rose 249% from its offering price to $62.75 that day, a first-day record until EarthWeb Inc., another Internet company, went public in November.
Broadcast.com's stock later rose as high as $103.75 and finished the year at $76.50. Financially, the company remains tiny, with expected 1998 revenue of around $16 million and a loss of nearly the same amount.
But it has become the leading provider of live audio and video on the Web. It gained wide attention late in the year for online broadcasts of President Clinton's deposition videotapes and the launch of the space shuttle carrying John Glenn. Broadcast.com recently signed a deal with the Nasdaq Stock Market to transmit corporate earnings and other announcements. "We want to license as much video content as we can and really play out our theory that variety on the Internet must be a mile wide," Mr. Wagner says.
Last year, Junglee Corp, a Web shopping service, faced the same options that most start-ups contend with: whether to build an independent company or ally with a bigger one that could popularize the technology faster. Junglee took the second route, agreeing to be acquired by Amazon.com Inc.
It wasn't a quick decision. The Sunnyvale, Calif., company earlier last year had been approached by another big Internet player and negotiated for some time before the talks dissolved. (One person familiar with the situation said the suitor was Yahoo! Inc.; neither company will comment.)
"We had gone through a painful process," says Venky Harinarayan, who was Junglee's vice president of business strategy. "We came out very convinced that we ought to go public."
Yet Amazon executives successfully made that case that a few Web sites would be the major commerce hubs on the Internet, and Amazon could be the biggest. Junglee's database technology, which extracts prices and other information from Web sites to allow comparison shopping, is already being tested on Amazon's site as a way to buy goods other than Amazon's staples of books, music and videos.
To buy the company, Amazon issued shares that were valued at $175.8 million when the deal was announced in August; those shares are now valued at $458.7 million. Four Indian-born technologists who founded Junglee -- a Hindi word that means of the jungle -- received shares now worth about $50 million.
The world of Internet start-ups moves fast. Just 11 days after WebLogic Inc. was profiled in this column Sept. 17, BEA Systems Inc. announced it was buying the San Francisco software supplier for stock then valued at $192.5 million.
The deal shows how ideas converge in Silicon Valley. WebLogic was among the first to exploit a computer language called Java from Sun Microsystems Inc. WebLogic used Java to create application servers, software that companies tailor to let employees and customers carry out business tasks using only a Web browser.
Application servers became one of the hottest niches of 1998, attracting competitors that include Sun and International Business Machines Corp. BEA, a specialist in transaction-processing software that has grown mainly through acquisitions, was willing to pay more than 20 times WebLogic's revenues to stake its own claim in the field.
But the deal shows the risks of taking stock instead of cash. BEA's shares, trading at $25 before the deal was announced, fell 50% in mid-November, when the company predicted that sales would be hurt by conditions in Asia and other economic issues. WebLogic founder Paul Ambrose, who received BEA shares valued at about $36 million, saw his net worth on paper also fall by half.
He doesn't seem worried. "This was not a get-rich-quick scheme," Mr. Ambrose says. "You didn't see WebLogic employees go out and buy silly things and cashing out. They are in it for the long haul."
Liquid Audio Inc. has found itself a player in a controversy involving online distribution of compact-disk-quality music. The Redwood City, Calif., company makes software that crams songs into small digital chunks that are easy to download over slow phone connections.
The challenge for Liquid Audio is that much of the CD-quality music on the Net is in another digital format called MP3, a free technology that has become a favorite of music pirates. While the Recording Industry Association of America, a music trade group, has demonized illegal MP3 recordings, Liquid Audio has long offered copyright protections for digital songs.
Liquid Audio could get a boost if a standards-setting effort now under way by the biggest record companies increases the amount of digital music that works with its software. In August, some of the industry's most savvy financiers, including Vulcan Ventures Inc. and Hummer Winblad Venture Partners, sank a total of $20 million into Liquid Audio.
The bad news for Vignette Corp. was that stock-market volatility prompted the company to pull its initial public offering in September. The good news for the Austin, Texas, maker of high-end publishing systems, which run some of the Web's biggest sites, is that by December it had refiled its IPO papers, hoping to take advantage of the renewed enthusiasm for Internet issues.
To give itself as much flexibility in the timing of the IPO, though, Vignette also raised a final round of private funding, $13.5 million, from investors including Morgan Stanley Dean Witter & Co. and Amerindo Investment Advisors Inc.
Last year, the company went through a typical manic growth phase for a start-up: Its head count leaped to 280 from 79, while it expanded its operations into new overseas markets. Vignette also moved to shed its dependency on a single product, with new software that lets Web sites broadcast their content and electronic storefronts to affiliated sites.
Scient Inc., a San Francisco-based consulting firm, has continued its hectic growth, as companies increasingly need its technical help to set up electronic-commerce operations on the Web. Scient says its roster of clients has doubled to 40 in the 10 weeks since it was profiled, while its work force has swelled 17% to 175.
"Demand from clients is clearly higher than we expected," a spokesman says. "We have gone from hiring 15 to 20 people per month to hiring 40."
Digital Island Inc., which hosts Web operations on computers in Hawaii to take advantage of quicker communications links, was the first company profiled in Under the Radar. It continues to expand; since that article last February, Digital Island's customer roster has doubled to 30 and its work force has swelled by 67% to 100. The company raised $10.5 million in additional venture capital -- bringing the total to $22 million -- and hired former Hewlett-Packard Co. executive Ruann Ernst as CEO.
Exodus Communications Inc. continued to grow rapidly in its business of hosting Web sites for Internet companies. Since April, the Santa Clara, Calif., company has signed strategic partnerships with Qwest Communications International Inc. and Sun Microsystems and acquired Arca Systems, a security company. Exodus's stock, meanwhile, has followed the big runup in Internet shares. Its shares have been trading in the $60 range recently in Nasdaq Stock Market trading, compared with about $37 when the Under the Radar column appeared in April. In September, Ellen Hancock, a former IBM executive, was promoted to chief executive officer from president.
Identicator Technology Inc., which makes digital fingerprinting technology, was acquired, four days after appearing in this column, by a bigger rival, Identix Inc. Under the agreement, Identix, based in Sunnyvale, Calif., agreed to acquire closely held Identicator, of San Bruno, Calif., for about five million Identix shares. Those shares rose to $8.375 from $7.875 the day the merger was announced on Nov. 16, and have been trading in the $8 range recently on Nasdaq.
SunStorm Interactive Inc., an Indianapolis maker of PC games, has hit the top-10 game bestseller list again with its "Deer Hunter II" title, a follow-up to its million-plus-selling "Deer Hunter." While the first game allowed armchair hunters to peer through a scope and look for deer in wooded terrain, the new game has three-dimensional animations that allow hunters to move through the woods as they track the prey.<< |
