Critical Path: E-mail Outsourcing Plus

BOSTON (06/05/2000) - David Thatcher, president of messaging services company Critical Path Inc., spoke recently with Network World Senior Editor Carolyn Duffy Marsan about the company's recent acquisition binge, its plans regarding wireless messaging and what IT executives worry about when they outsource their e-mail systems.

NW: Last year was a busy one for Critical Path. The company went public and then went on an acquisition binge, buying eight messaging vendors since last June. What is the status of the company?

Thatcher: Over the last year, we did two public offerings. We followed the most recent with a convertible debt financing, which leaves Critical Path financially sound. We also did eight acquisitions over that period of time, and those acquisitions were all very small. What it leaves us with now is the full complement of messaging applications sitting on top of the basic e-mail engine.

That e-mail engine can either be in the form of software that the customer maintains or it can be in the form of outsourcing.

NW: What progress have you made in assimilating all the companies you've acquired?

Thatcher: We consider all of the companies to be completely assimilated - not only from a cultural viewpoint, but from a personnel, and most importantly, a technological viewpoint.

NW: What were the most difficult challenges that you faced in assimilating all of those companies?

Thatcher: The biggest challenge was assimilating the people. We adopted the Cisco methodology and have been pretty successful. We have an integration team within Critical Path that goes out and identifies the culture, identifies the people that are strong. And we are able to very quickly assimilate those people within Critical Path as a result.

NW: Will you make other acquisitions this year?

Thatcher: If the opportunity is there at the right price with the right people and, most importantly, with the right technology. We facilitated the acquisition process by doing the convertible debt offering, which cleared another $300 million in cash in the Critical Path bank account. I look at the acquisition environment as being opportune now as a result of the stock market [decline] and the ability of companies to go out and raise financing through public means being shut off. Critical Path's stock is not down nearly as much as some other Internet companies'. So we have a good currency, and the market is ripe from a valuation standpoint.

NW: What types of companies might you acquire?

Thatcher: Critical Path is keeping a tight focus on messaging, so anything within the messaging arena is something we could look at for either an acquisition or a strong partnership [like] content security or secure storage.

You could see us looking at business-to-business instant messaging or other wireless applications.

NW: What is your strategy for wireless messaging?

Thatcher: Our whole messaging offering is just as applicable to the wireless environment as it is to the LAN or the PC environments.

Many [people] predict there will be twice as many wireless handsets that are Internet-capable by the year 2003 as there are PCs that are Internet-capable.

Because of speed and screen limitations [of wireless devices], much of the information available over the Internet will come in the way of messaging. So that just represents one more opportunity for Critical Path.

NW: What trends are you seeing in the enterprise messaging market?

Thatcher: The biggest competition that you run into in the enterprise is Microsoft Exchange. But because Microsoft Exchange is becoming so complicated and expensive to run, even Microsoft is looking at ways to outsource or host that technology.

So what we're selling to the enterprise is hosted Microsoft Exchange or our hosted solution. Currently, it costs between $12 and $14 per corporate user on a monthly basis to handle their e-mail. Critical Path's solution ranges from $4 to $5 per mailbox, per month. And with that you get the ability to have updated software all of the time, greater reliability and at a much cheaper cost.

NW: Is this the year when large companies are ready to outsource their messaging?

Thatcher: Yes. We will start seeing larger and larger companies adopting outsourcing, especially those that have [dispersed] geographical locations or those that have multiple e-mail systems within their enterprise because of acquisitions.

The best example is our partnership with Federal Express, whereby FedEx is outsourcing some 3,000 mailboxes and hopefully soon it will spread throughout their organization. They're buying Web-mail, and they will be looking at security and potentially calendaring. We also have a large outsourcing deal with Sun.

NW: When you talk to chief information officers or CEOs of large companies here in the U.S., what issues are they most concerned about regarding their messaging systems?

Thatcher: People are still interested in basic e-mail messaging. Security is second. I think people are looking at how they can have more dependability and reliability and the ability to have a key business mechanism function better.

NW: What will Critical Path look like a year from now?

Thatcher: You will see more and more offerings, either through partnerships or through acquisitions. Currently, [analysts] have us in 2001 as being at $240 million in revenue. And that's off a $900,000 revenue year in 1998. So it's pretty phenomenal growth.

NW: What are the top three opportunities for Critical Path in the enterprise market this year?

Thatcher: The basic e-mail engine is very hot right now and represents a huge opportunity for Critical Path. Beyond that, I think it's secure messaging and collaborative tools. And I would say that directory services will be very large this year.

NW: What are your plans with regard to secure messaging?

Thatcher: It's a huge market, and it's a market that not only applies to the desktop but also to the wireless environment. The way Critical Path has approached this is through the ubiquity of the Internet. We can act as a certificate authority . . . so that both sides have the utmost level of security.

Not only that, but it's a Web-based methodology such that there is never any software download requirement. The companies that are most interested are in the financial services industry, the legal industry, the accounting industry-anyone that is transferring documents.

NW: What is your strategy with regard to unified messaging? I'm defining unified messaging as integrated voice, e-mail and fax.

Thatcher: We have unified e-mail and fax and have several partnerships, for instance with Comverse and Mavio and others in Europe for the voice component.

Unified messaging the way you define it really requires a wireless component.

In the United States, the main wireless device is a pager so there's no voice component to that. In Europe and Japan, it's a different story. Therein lie our relationships with both Comverse and Mavio.

For instance, Mavio is a small private company in London that we believe has a great unified messaging solution. We've fully integrated Mavio into our solution. That will be rolled out in the next month.

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