Excellent article featured today in the Financial Post.....
For Tuesday, June 1, 1999
Investors catching on to the likes of FutureLink
Cameron Chell launched a business and an emerging industry
By CAROL HOWES
The Financial Post
CALGARY -- From the moment Cameron Chell dropped out of high school to start his own computer consulting firm, he began crafting a plan to provide users with cheaper and broader access to expensive software applications.
The result is not only the launch of his Calgary company, FutureLink Distribution Corp., but Mr. Chell has been credited as one of the founders of a rapidly emerging industry -- computer utilities.
Not unlike water, power and telephone service, a computer utility provides an off-site service for a rental fee, eliminating up-front capital costs for hardware and software, costly upgrades, and dedicated technical staff and support systems.
Known as application service providers, the industry is expected to reach at least $6-billion by 2001, according to analysts' estimates.
Mr. Chell, chief executive and chairman of FutureLink, has been elected president of an international ASP consortium made up of 25 of the leading technology companies. The consortium includes such heavyweights as IBM Corp., Compaq Computer Corp., Onyx Software Corp., Sun Microsystems Inc. and Sharp Electronics Corp. and was formed last month to promote the new business, fund research and develop standards for the industry.
"We're building an entirely new industry here. This is going to be the model the world is going to," says Mr. Chell, a Canadian top 10 decathlon athlete. "Software is no longer a product, it's a service."
FutureLink hosts, manages and leases what is typically packaged application software and also stores company data at a centrally managed "server farm" -- a secured facility the company opened in downtown Calgary in March. Clients are small to mid-sized companies and access the service through the Internet.
Much like the flick of a switch to turn on lights, a tap of a keyboard provides access to what appears to the user to be a seamless service.
The industry is grabbing the attention of investors and major software developers in the United States. Two years ago Mr. Chell couldn't sell the idea to investors. In the past few months, there has been a flurry of announcements from similar U.S.-based companies signing on big name clients or landing major deals, such as Santa Clara, Calif.-based Corio Inc.
Another company, USinternetworking Inc., based in Annapolis, Md., preparing to go public, recently raised close to $100-million (US) in two rounds of financing despite the fact the company made only $4-million (US) last year.
"It seems to me FutureLink is leading the charge in an area that's going to become increasingly more important," says Gopi Bala, director of management strategies with the Yankee Group in Boston.
"Leadership is not always related to scale and size. They were one of the early proponents of this business model."
While skeptics question whether companies will be able to trust the use of the Internet for storage of its critical in-house information, research firms estimate the ASP market is poised to grow exponentially over the next few years.
Claire Gillan with U.S.-based International Data Corp., an information technology research firm, estimates spending in the ASP market will reach $2-billion by 2003, a 91% four-year compound annual growth rate.
Forrester Research Inc. estimates the industry will reach $6-billion by 2001.
"FutureLink is a pure-play and they are early to launch," says Ms. Gillan, vice-president of IDC's application and information access software research group. "Their position is quite strong right now."
FutureLink went public last year through a reverse takeover of a company traded on Nasdaq. It quickly grew to revenue of $10-million with the acquisition of a private information technology outsourcing firm SysGold Ltd. FutureLink now has 130 customers, representing about 4,000 desktops. Its board of directors includes Phil Ladouceur, chairman of MetroNet Communications Corp.
Mr. Chell, who got his start in business at the age of seven hawking comic books on a southern Alberta highway, says he mulled over the idea of a computer utility company for years but couldn't make it work. With declining costs of bandwidth and increasingly complex information technology, only recently has the business become attractive to investors.
Software companies have embraced the ASP industry, he says, because it reduces software pirating, a major money-loser for software producers. Through ASP all software must be licensed and upgrades on software across networks can also be done more cost-effectively.
"With computing services becoming a utility, we are breaking the barrier to greater market penetration and making the technology affordable and accessible to everyone," Mr. Chell said.
Garry |
