Financially troubled USinternetworking's announcement that it has emerged from its Chapter 11 restructuring with a cash infusion and a merger partner could signal the end of the dowturn for the battered ASP market.
The financially troubled USinternetworking Inc. this week announced that it has emerged from its Chapter 11 restructuring
with a cash infusion and a merger partner.
The turning around of USis fortunes could signal the end of the downturn for the battered ASP (application service provider) market, as service providers hone offerings and end users begin to warm to the concept, analysts said.
USi restructured itself in four months and received an $81.25 million investment from an affiliate of Bain Capital, wiping off all but $70 million in debt off its books. At the same time, USi will merge with ASP Interpath, in which Bain Capital owns a controlling interest.
The combination will yield the largest PeopleSoft ASP in the world, with 130 customers across a range of applications and combined revenue of $150 million for 2001, according to Andy Stern, who will become chairman and CEO of the combined companies. Stern believes the two companies complement each other well.
"They have a strong e-commerce business built around Vignette. Were built around Microsoft and BroadVision. We have a strong CRM offering with Siebel; theyve been smaller in scale with CRM. Interpath spent a fair amount of effort developing a shared infrastructure solution--we have not. This lets us address a broader market segment," he said.
During its restructuring process, USi managed to hang onto most of its clients by improving service levels, Stern said. "The availability level across our entire client base was 99.98 percent," he said.
USi also did a good job of keeping clients in the loop throughout the process, reassuring them that their plan to keep the company in business was solid, according to Eddie Rivera, vice president of information technology at Mars Music Inc. in Fort Lauderdale, Fla. "They went out of the way to make me feel comfortable and know they were going to be around, and they did that for all their customers. They managed it very well," he said.
Stern believes that Bains commitment to provide up to $100 million in funding is a strong signal to the market that the ASP business model is here to stay.
As consolidation continues in the struggling ASP market, the remaining players are creating stronger businesses that are beginning to attract more interest from enterprises that had previously shunned the ASP space, according to Amy Levy, senior analyst with Summit Strategies Inc. in Boston.
"There wasnt a meshing before of business pain points with ASP value propositions to make the market take off. As the ASP pool shrinks dramatically, the ones with real value propositions are left standing. And it seems the message is finally getting through that these companies have some advantages," she said.
"Nobody was buying in Q3 or Q4 of last year," said Kneko Burney, director of business infrastructure and services at In-Stat/MDR in Scottsdale, Ariz. "This year our research is suggesting that large and midsized companies are showing more demand for managed services, whether its Centrex, hosted applications or what have you. Service providers either have proven themselves or have perfected their solutions to the point where they are addressing demand in the market."
Still, as USi works through its integration issues with Interpathincluding consolidating Interpath data centers in Research Triangle Park, N.C., and Columbus, Ohio, into its Annapolis, Md., centerit has an "uphill battle" in trying to achieve long-term viability, said Carrie Lewis, analyst with The Yankee Group in Boston. "They will have to cut costs, evolve their offerings and attract larger customers--all the while building their reputation in the marketplace and proving to end users that theyre viable," Lewis said.