ASPs Woes Mirror Those of the Industry

cMeRun's problems spur questions about the success of hosts in general

Fiscal and executive personnel problems taking place at a small ASP provider that most enterprise users have never heard of are sending ripples through the hosted applications industry. In fact, the company is but a microcosm of the troubled application service provider space in general.

In little more than a month, cMeRun Corp., spawn of Canadian ASP guru Cameron Chell, has seen the resignations of its CEO, Jim Lovie; its vice president of sales and marketing, Paula Hunter; and board member David Hayden—plus the outsourcing of its entire infrastructure to a sister company. Its 35 employees have been pared to nine, and the vendor counts just one active customer. Its stock peaked at $44 in March last year but stopped trading electronically in late September because the companys auditors resigned. Since then, it has hovered around a dollar.

The big difficulties of this small-business ASP, in Hudson, Mass., are magnified because Chell, who is widely credited with creating the ASP model, has long been the pundits favorite for bringing hosted applications into the mainstream. With cMeRuns problems, many now ask who, if not Chell, has the experience, money and connections to make the ASP model profitable.

Ever the optimist, Chell, a former decathlete, said hed argue "until I was blue in the face" that the ASP industry will succeed but that its simply 18 months ahead of the acceptance curve.

"Im taking the reins, and were going to drive this thing. The weak chickens get weeded out," Chell said, having appointed himself cMeRuns interim CEO and devoted $4 million of his own money to the company.

But these days the "weak chickens" —and that includes cMeRun—are plentiful. Consider the following: FutureLink Corp., the Lake Forest, Calif., pure-play ASP Chell co-founded, has had its stock price battered over the past year, plummeting from its 12-month high of $38.50 to 87 cents last week. Likewise, USinternetworking Inc.s stock has sunk from its 12-month high of $71 43/64 to $2 31/32; Corio Inc. from $21 3/4 to $3; and Breakaway Solutions Inc. from $85 1/2 to $1 9/32.

Combine these numbers with layoffs and restructuring these companies have gone through, and the ASP picture Chell and others paint looks less rosy. Nevertheless, industry experts and potential customers agree that Chell, now a venture capitalist who, in addition to FutureLink, founded the ASP Industry Consortium; Chell Merchant Capital Group Inc., of Calgary, Alberta, an ASP incubator; and security company Jaws Technologies Inc., now Jawz Inc., has both the technology vision and leadership skills to succeed. But thats not necessarily the formula for success, according to Laurie McCabe, an analyst with Boston-based Summit Strategies Inc. "People that are innovators are not necessarily good at executing. Im not really sure that [Chells] mastered that," McCabe said.

"Having capital, having a leader [do] not negate the necessity of having an effective business model to deliver to your clients," said Paul Rudolph, chairman and CEO of Agilera Inc., an ASP in Englewood, Colo. "Thats whats ... key in this equation—having things that clients want to buy. It all comes down to execution."

"Corporate America is not going to flood to your gates because you built something," said David Castellani, CEO of New York-based Mi8 Corp. "I ask myself every day if we started this thing too early."

Meanwhile, to keep cMeRun alive, Chell is planning to transition it into an application streaming company by early next month. Key to that plan is a forthcoming partnership with streaming software company Exent Technologies Ltd., of Bethesda, Md.

"They came to us because they need a partner to act as an integrator,"said cMeRun President Colin Curwen. "We have customers looking for solutions, high-end stuff that Citrix [Systems Inc.] cant serve."

Another possibility for cMeRuns future, Chell said, is a merger with Inc., another Chell Merchant Capital company, in Bellingham, Wash., that took over cMeRuns infrastructure. "I suppose theres potential there," he said. "The industry in general has had many issues to deal with in regard to belt-tightening."