Interliant narrows ASP focus

The shakeout in the application service provider market continues with Interliant announcing Tuesday it is narrowing its ASP focus and will make no further investments in high-end applications such as enterprise resource planning, customer relationship management and e-commerce.

Instead, company officials say they will focus on managed messaging (including Lotus Domino and Microsoft Exchange), managed hosting, Web hosting, managed security services and professional services - areas where they have seen greater demand.

Interliant CEO Herb Hribar says in a statement that the lagging economy and the slow adoption of the ASP model have forced the company to make the changes. In addition to restructuring, the company also announced it is eliminating 190 employees, or 14% of its workforce.

Interliant will continue to serve customers currently accessing high-end applications, but is considering selling business units that fall outside its newly narrowed focus. Hribar says Interliant is focusing on those areas that have shown the highest demand, "and prior investments in infrastructure and personnel should enable us to take them to the next level."

Laurie McCabe, vice president and service director at Summit Strategies, says the move is a smart one.

"They've been trying to juggle three very different business models," she says. " It's hard to reconcile all these different business models in a small, new company. It's one thing if you're IBM and you've got enough wherewithal and money and people and everything else. But it's really tough. In the big boomtime, people said, 'Anything is possible. We can do it all.' Now, reality is setting in."

She says Interliant likely will have better success moving current Web hosting customers into higher-level managed services or messaging applications, rather than trying to move them into complex CRM and ERP environments.

"These are areas where they can succeed and there is a demand for it," she says. "They don't require as much personalization and customization."

Interliant reduced its earnings outlook for the first quarter of this year and requested a 15-day extension for filing its annual report with the Securities and Exchange Commission. The company says it expects revenue in the first quarter of this year to be around US$37 million, rather than the $44 to $46 million it had expected. Revenue for the fourth quarter of last year was $48.3 million. Interliant could not estimate earnings for the balance of the year, but says new revenue bookings for the first quarter have dropped.

As a result of the company's restructuring and uncertain earnings expectations, Interliant officials say the $20 million in equity financing from an affiliate of Charterhouse Group International has yet to be consummated and future financing is in doubt.

Interliant's news follows restructuring announcements from FutureLink and Breakaway Solutions Breakaway's CEO Gordon Brooks stepped down and FutureLink announced it was running out of cash and would focus on professional services in the US, rather than its ASP business. FutureLink CEO Howard Taylor says the slow adoption of the ASP model is the reason for the restructuring.

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More about Breakaway SolutionsCharterhouse GroupFutureLinkIBM AustraliaInterliantMicrosoftSecurities and Exchange CommissionSummit Strategies

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