Big Play

ASP adjusts customer target

Jamcracker, the richly funded application services firm headed by Exodus Communications co-founder KB Chandrasekhar, is a blue-blooded company in what turns out to be a blue-collar business. While neither the company nor its young industry have matched expectations of spectacular growth, Jamcracker executives say they are still on course.

"We were going to go 120 miles an hour," says co-founder Mark Terbeek. "Were still speeding, were just doing 80."

Earlier this month, Jamcracker announced that it has 42 customers up and running, with another 41 in some stage of deployment. Thats a significantly lower customer count than anticipated last year, albeit one that reflects a shift in focus to somewhat larger companies than the small-to-midsize market Jamcracker originally targeted.

Terbeek says Jamcracker now has the tools to do the hard work of industry-building.

"Were a lot smarter about where the opportunities are, because we have better data and more customers to learn from," Terbeek says. "Our view of the amount of capital required to get us to profitability is the same now as it was on day one, but we may get there with three-quarters the number of customers." Jamcracker has raised about $150 million to date; Terbeek would not comment on the possibility of pursuing additional money.

Aside from tweaking its customer profile, Jamcracker isnt changing its core strategy of aggregating the services of various ASPs into packages of integrated applications. Another ASP aggregator, Agiliti, has backed off the model to focus more on basic services, while industry pioneer USinternetworking has reversed its early emphasis on owning data centers.

"If you look at how many assumptions made in the core strategy are right, and our ability to stick with that core as this business goes through its most tumultuous time, then you have to say were on target," says Todd Johnson, Jamcrackers vice president of marketing. But even within their newly defined "sweet spot" — companies with 300 to 5,000 employees — he concedes selling is still a slow process. "Were viewing the first part of every sales call as an education," Johnson says.

Selling additional services to customers will be a key to Jamcrackers success. "Getting them from two apps to five hasnt been very challenging," Johnson says. "The number of seats and the dollars per user will be important. More seats at fewer customers is better than the other way around."

At RightWorks, a fast-growing vendor of e-business applications, Chief Information Officer Reza Sadeghian is adding a customer relationship management service to an existing Jamcracker package that includes human resources and bulletin board applications. "We will gradually become an all-Jamcracker shop," Sadeghian says. "It is now the default portal for every one of our 400 employees, and we will migrate with them to enterprise applications as we both grow."

Helping to drive Jamcrackers move up-market is an alliance with Accenture, formerly Andersen Consulting, which has led directly to deals with larger companies. Another, unexpected boost comes from the sagging economy, Terbeek says. "Customers are more interested in avoiding spending capital dollars and in saving operating dollars," he says. "We are being helped by that exogenous shock to our market."

Jamcracker continues to add staff and has moved to a big new headquarters in Cupertino, Calif., but Terbeek stresses that the company is being careful with its money. "The market says we will be judged by the same metrics as other businesses, and were managing prudently," he says. "Its been a wild 18 months, but we still look at this as a clear breakaway opportunity."