by Alex Woodie

A year after going into business as a full-service application service provider, Infinium Software is calling it quits. The Hyannis, Massachusetts, provider of enterprise software for the OS/400 and Windows platforms made the announcement in October as part of its strategic restructuring initiative to return the struggling company to profitability.

Infinium's Marlboro, Massachusetts, ASP data center is still online as the company works with its customers to move their applications to new facilities. It is not known when Infinium will shut down the ASP center for good, but considering the millions of dollars that Infinium has lost in the venture, and the new management team's focus on core competencies, it probably couldn't come soon enough.

During the last 12 months, Infinium almost entirely overhauled its senior-level management. Led by James McGowan, who replaced Infinium founder Robert Pemberton as president and chief executive in February, the company set out to analyze everything the company did from the perspective of whether it was core and whether it was profitable, said Dave Griffin, Infinium's director of corporate communications. "The ASP business didn't provide an opportunity for timely profitability," he said.

One of Infinium's largest ASP customers, Viking Freight, a division of Federal Express, is considering several options, including bringing its Infinium applications back in-house or outsourcing it to another ASP. "We're not too concerned about it," said Randy Gardner, vice president of information technology at Viking Freight. "It's not like they just pulled the plug. It's just another project to take on."

Gardner said he wasn't surprised by Infinium's announcement. "We understood there was a risk going in," he said. "We paid close attention to their prospects on the sales front, and the number of customers wasn't enough to make it a viable program."

Infinium launched the ASP center in the fall of 2000 and soon thereafter spun off ASP operations into a separate subsidiary, called Infinium ASP. Company officials had high expectations for the new ASP division, which they said would help businesses save money by eliminating the overhead and expertise related with running their own hardware and managing their own ERP applications.

The company invested more than $10 million in its state-of-the-art data center, which featured the latest AS/400 hardware, redundant power supplies, advanced security mechanisms, fast network connections, and other necessities for an enterprise-class data center.

Infinium built it, but the customers didn't come. Revenue from the ASP center started rolling in at a rate of about $20,000 per month when it opened. But when Infinium decided to close the center, it had only 10 customers, bringing in about $200,000 per month, Griffin said. In October of this year, the company took a $9 million loss associated with the closing of its ASP business.

"If you can do the business right, and you have the patience and the bank roll, we think we could have been successful," Griffin said. "We liked our competitive advantage. But we had to make some tough decisions that really weren't that tough when you looked at the numbers."

In all fairness, Infinium wasn't the only ERP vendor jumping on the ASP bandwagon in 2000. The company's primary competitors in the AS/400 ERP marketplace, Lawson Software and J.D. Edwards and Company, both announced their own ASP initiatives at about the same time as Infinium. However, neither of these vendors went as far as Infinium did in building its own enterprise-class data centers, which Infinium considered a competitive advantage. Instead, Lawson and JDE partnered with wholesale service providers, such as USinternetworking, which had the expertise in data center operations.

While the market for hosted applications has changed over the last year, the ASP model remains strong, said Dick Kiscaden, director of the iSeries branch of xSP Prime Center (formerly called ASP Prime Center). He said the number of iSeries ASPs registered with the xSP Prime program was 41 at the beginning of 2001 and is now 135.

"The number of ASPs is really telling us that the business of ASP is growing fast," Kiscaden said. "They've seen some significant growth this year."

However, the number of companies actually running data centers, which IBM calls application infrastructure providers, has not grown much this year. After Infinium dropped off IBM's list of AIPs, the number of data center providers for the iSeries has leveled off at 22.

"There's a big over-capacity in data centers," Kiscaden said. "During the heyday, there were a lot of people building data centers. We're not seeing a lot of new data centers being constructed, but there are a lot of data centers interested in picking up iSeries."

Griffin concurs that the data center business has taken a beating this year. "Look at your valuations of companies like USinternetworking," Griffin said. "I think that ASP can work, but the financial model needs to be tuned. It's just finding the right model, and in the right amount of time. In our case, we weren't going to be patient."

The new focus on the bottom line appears to have helped Infinium in the short term. Not counting the $9 million loss associated with closing down the ASP business, the company returned to profitability in the fourth quarter of 2001, which ended September 31.

Now the challenge for Infinium will be returning to what it once was: a $100-million-per-year software company. To do this, Infinium plans to concentrate on what it does best, namely writing, selling, and supporting human resources, financial, manufacturing, and distribution software for the AS/400 and iSeries, and CRM software for the OS/400 and Windows platforms.

"What brought you to the dance is what we're sticking with," Griffin said.

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by Timothy Prickett Morgan

Lawson Software, the enterprise application software vendor that, for years, has been the only major ERP software maker to not go public, bit the bullet and braved the IPO market last Friday.

Lawson and its investment partners sold 14 million shares to the public at $14 a share, and the shares opened on Wall Street at $15.53. They eventually peaked at $16.61, and then retreated somewhat as the market closed. Lawson raised $191 million by going public, and its investment partners raised $4.6 million. Lehman Brothers and J.P. Morgan Chase had initially planned to take Lawson public selling 12.7 million shares in the $15 to $17 range, but a few weeks ago decided to up the share count and lower the offering price to make the stock more attractive to skittish investors who rode up the wave in initial public offerings for technology companies in the late 1990s, only to get burned in the new millennium as the stock market tanked. About a quarter of the IPOs done this year were related to high-tech hardware or software, compared with 65 percent of IPOs last year.

Lawson, based in St Paul, Minnesota, and founded in 1975, has 1,900 employees and 1,800 customers worldwide, who run its eponymous software suite on OS/400, Unix, Windows, and mainframe servers. By going public, Lawson has to present the last five years of its financial history, some of which has been a mystery for years. Lawson, as the numbers show, has done well in a tough market surrounded by much bigger players with better-known brand names in the application software market. (Indeed, getting a higher profile, which is an expensive proposition for any company, is one of the reasons why Lawson has finally gone public.) In 1996, the company booked $96 million in revenues and had profits of $3.7 million. (Lawson's fiscal year ends in May, and these figures are for fiscal, not calendar, years.) In 1997, revenues grew by 45 percent to $139 million, and profits grew 51 percent to $5.7 million. In 1998, when the Y2K ERP bubble really got going, Lawson was able to boost revenues to $196.5 million (up 41 percent), but the cost of developing new Web-enabled applications and the need to compete against SAP AG, PeopleSoft, Baan, Oracle, and others put pressure on profits, which increased only 10 percent to $6.2 million. In 1999, Lawson got back on an even keel--again, lifted like other ERP vendors by the Y2K crisis--and boosted revenues by 35 percent to $264.5 million and profits by 40 percent to $8.7 million. By 2000, the application software market was beginning to cool, and Lawson felt it as much as any other vendor. Revenues increased by only 18 percent to $312.9 million, and the company actually booked a loss of $3.3 million. Through the nine months ending in February 2001, Lawson's revenues were up 21 percent to $268 million, and it had nice healthy profits of $7.6 million.

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