NETWORK WORLD NEWSLETTER: JEB BOLDING on
APPLICATION SERVICE PROVIDERS
01/23/02
Today's focus: Buying beyond your means

Dear Wincenty Kaminski,

In this issue:

* USinternetworking files for bankruptcy protection
* Links related to ASPs
* Featured reader resource

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Today's focus: Buying beyond your means

By Jeb Bolding

USinternetworking earlier this month announced that it has
filed for Chapter 11 bankruptcy protection. It joins an
unfortunate list of other ASPs who also have begun bankruptcy
protection proceedings, including FutureLink and Breakaway
Solutions. No doubt, there are dozens of other ASPs with the
same troubles, but did not have wide media play and so have
quietly disappeared into anonymity.

According to an article I read about USi's financial issues,
Bain Capital Partners promised an investment if USi could erase
$120 million off its existing debt. From what I've seen about
this recent turn of events, it is assumed that two issues led
to USi's situation: its huge investment in its multiple
datacenters and the slow adoption rate of the ASP model.

It appears that by erasing the bulk of its debt, USi will have
the financial wherewithal to last through the economic downturn
we're now experiencing. Existing investors jumped on this
opportunity, and USi customers should not experience any loss
of service during the restructuring period.

All well and good.

But does Chapter 11 and further investment really solve the
problems that plagued USi and its unfortunate, bankrupt
brethren? I'm not sure that it does. Has the behavior and value
proposition for USi been re-evaulated and altered to
accommodate new market opportunities?

I mean, you know, I've been really eyeing the new flat panel
iMacs that are on the market for $1,800. I would also really
like a new Powerbook G4, which costs about $2,900. And those
$2,400 Sony Picturebooks are really cool too. To top it off,
though, I'd really like to have one of Sun's SunBlade 100s with
an Intel daughterboard inside and a flat panel display - that
would set me back about $3000. Finally, I'd have to network all
these machines together so that I could get effective use of my
Sprint Broadband connection (yes, I really do have that).

Hmmm, I don't make enough money to afford all that. Maybe I
should just buy it all and then declare bankruptcy. I
understand that even with that bad mark, I can still get credit
cards. So once I've bought all this, I could focus on my
motorcycle needs. I've got a nice, but old, Honda VFR750...at
heart, though, I'm a BMW rider and I'd really like to buy one
of the new R1150GS that sell for about $15,000. Of course, I'll
need some bags, heated grips (I live in Colorado after all), a
new helmet, and updated body armor.

I suppose that by now, you get the point. I could probably
continue this process of buying beyond my means for quite a
bit, never changing my behavior, and always being sunk in debt.

Eventually, USi is going to have to do more than wipe out its
debt and get more equity. If it doesn't change its business
model, its behavior, and the way it manages its assets, then
this cycle will be repeated soon again.

The first things that I'd look at are the cost of its
datacenters and how reliance upon them can be minimized. I'd
also consider what hosted applications have been profitable so
far and get rid of the dead weight that has no traction. I also
would do some strategic research into the technology
developments that are going to take place within the enterprise
in the next 12 months and see how I, as a company, could
address those implementation needs with my existing
infrastructure, as well as investing in non-existent
infrastructure that could be leveraged to sell into those
strategic spaces.

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To contact Jeb Bolding:

Jeb Bolding is senior consultant with Enterprise Management
Associates in Boulder, Colo., an analyst and market research
firm focusing exclusively on enterprise management. Bolding has
10 years of experience in the network systems industry, most
recently with eCollege.com, an ASP for higher education, where
he was director of product development. He can be reached at
mailto:jbolding@enterprisemanagement.com.
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RELATED EDITORIAL LINKS

USi files for Chapter 11
Network World Fusion, 01/07/02
http://www.nwfusion.com/news/2002/0107USI.html

Breaking ASP news from Network World, updated daily:
http://www.nwfusion.com/topics/asp.html

Archive of the ASP newsletter:
http://www.nwfusion.com/newsletters/asp/index.html
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Network World Fusion's The Edge site

Network World Fusion's The Edge is a resource devoted to the
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old telecom order. In classic Network World fashion, we focus
on the hardware, software and services coming to market - but
this time from the vendors targeting legacy carriers, new
alternative local carriers, ISPs and application service
providers. http://www.nwfusion.com/edge/index.html
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