CRM vendor shuts down application hosting venture

Users renting customer relationship management (CRM) applications from embattled software vendor Kana Communications Inc. have a month to find a new hosting firm.

Redwood City, Calif.-based Kana confirmed this week that it is pulling the plug on its application service provider (ASP) venture, dubbed Kana Online, and turning that unit's 50 customers over to business partners or other third parties. Kana Online will cease operations by the end of next month, the company said.

The plan to shut down the ASP unit follows last month's announcement of a merger deal between Kana and Menlo Park, Calif.-based Broadbase Software Inc., another struggling software vendor. It also comes in the wake of a 20 percent workforce reduction and the hiring of a new CEO by Kana earlier this year.

While Kana has reported two straight losses, including a whopping US$752.9 million first-quarter deficit on revenue of $24.2 million, company officials said the ASP operation isn't being closed for financial reasons. Kana Online was profitable, according to Michael Bettua, Kana's vice president of marketing. But, he added, the company's business model has changed in the two years since the ASP unit was launched, originally as a simple e-mail response system.

Bettua said Kana is now targeting more enterprise-level users than it was at that time, a strategy that doesn't lend itself to the ASP model. Kana Online initially "was designed for upstart dot-com companies that didn't have the cash to [install software themselves] and wanted it quickly up and running," he said.

Some larger users looking to avoid a large capital outlay for CRM applications also turned to Kana Online. But with Kana also busy with the Broadbase merger and an earlier acquisition of Silknet Software Inc. in Manchester, N.H., Bettua said the ASP venture had become a distraction from the company's core business of developing and selling software.

Kana executives decided it made more sense to shift application hosting responsibilities "to companies that focus on [being ASPs]," Bettua said. He added that the ASPs that take over the hosting business won't necessarily charge more for the service than Kana Online had been.

Steve Bonadio, an analyst at Meta Group Inc. in Stamford, Conn., said the planned shutdown wasn't a big shock. "Kana has a huge amount of work ahead of it," including the completion of the Broadbase deal and a planned retooling of its entire application suite, Bonadio said. To do all that and continue running Kana Online would be "very difficult," he added.

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