Agiliti Turns to Resellers for New ASP Service

SAN FRANCISCO (03/23/2000) - Looking for a piece of the hot ASP (application service provider) market, startup Agiliti Inc. on Monday will announce what it's calling a new model for distributing rented software applications to businesses.

Agiliti plans to sell its ASP service through partnerships with VARs (value-added resellers), professional services firms, Web developers and vertical trade associations. The startup believes it can make use of the trusted relationships those partners already have with businesses to win customers more effectively than larger rivals like USinternetworking Inc., who target customers directly.

The model could allow more firms to enjoy the potential cost-savings of the ASP model by making it easier for them to find a service that fits their needs, said Tom Kieffer, Agiliti's chairman and chief executive officer, in an interview yesterday. Kieffer founded the Minneapolis, Minnesota-based company last year.

Agiliti has struck partnerships with software vendors including Microsoft Corp., Great Plains Software Inc. and Intershop Communications to offer their applications in hosted environments. Agiliti's sales partners can package the applications in ways they think best suit their customers' needs. When a sales partner secures a deal, Agiliti steps in to take care of the hosting, applications management and billing requirements.

Agiliti's efforts are limited currently to the Minnesota area, where it rents applications to about a dozen businesses through 10 local partners. However, the company announced last month it has raised US$16 million in a second round of equity funding, and hopes to expand its service quickly by teaming up with additional sales partners throughout the U.S., said Mike Thomas, Agiliti executive vice president, in yesterday's interview.

The company's backers include Norwest Equity Partners of Minneapolis, Silicon Valley venture capital firm Delphi Ventures, and Bill Cadogan, the chairman and CEO of ADC Telecommunications, also of Minneapolis. The bump follows a first-round investment of $4.5 million in the middle of last year.

Agiliti plans to market its services next in the southwestern United States and Silicon Valley areas. The startup is also in early talks with Arthur Andersen about a possible deal in which the services firm would offer Agiliti's service nationwide, according to Kieffer.

The company's revenues today aggregate to about US$5 million a year; Agiliti hopes to boost that figure to about $18 million a year over the next 12 months, Kieffer said.

Proponents of the ASP model, who include Sun Microsystems Inc., AT&T Corp. and Microsoft, say it can help customers save money by allowing them to rent applications on a pay-per-use basis, rather than buying expensive programs and the hardware needed to run them. The model can also save on IT management costs, the proponents say, and give customers quick access to software upgrades.

At the same time, Agiliti said its resellers benefit by being able to distinguish their offerings from competitors. They can also glean additional revenue by providing some of the ASP consulting and integration services. For every dollar spent by a customer, about 60 cents would go to the software application vendor, 30 cents to Agiliti, and 10 cents to the reseller, Kieffer said.

Carving out a niche in what is already a busy ASP market won't be easy, observers said. Agiliti will need to convince businesses that they can entrust their data and important applications with a third party -- and one that currently doesn't have a strong recognized brand. Questions also remain about the Internet's ability to provide the levels of stability, performance and security needed to support the ASP model.

Nevertheless, analysts are bullish about the market. International Data Corp.

(IDC), based in Framingham, Massachusetts, estimates that companies will spend $7.8 billion worldwide on ASP services in 2004, up from just $296 million last year. Companies have been slow to move to ASP services in part because current offerings are immature, and because customers aren't aware of the options available to them, IDC said.

Agiliti can be contacted at +1-612-918-2000, and on the Web at http://www.agiliti.com/.

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