May 11, 2005

Corporate Concierge

Continued from page 1

By Technology Review

Application service providers grow up -- and other alarm:clock news from the land of private venture funding.

The word "outsourcing" tends to conjure up tasks such as software development, assembling computers, and telemarketing support. But it really isn’t just about sending jobs elsewhere. Application service providers (ASPs), the companies that develop and host software applications such as customer relationship management (CRM) and payroll functions, have given a different meaning to the concept of outsourcing corporate tasks.

The ASP model is all about letting other people manage your software by hosting it on their own servers. Because it’s often cheaper, faster, and easier than managing the software internally, ASPs have been a boon for the corporate bottom line. Even though it sounds like a no-brainer, until the successful IPO of outsourcing pioneer Salesforce.com in June 2004, ASPs still had to prove their mettle.

Now, an increasing number of ASP start-ups are finding their stride. San Mateo, CA-based SuccessFactors is a proven winner, with 600,000 users, 150 clients, and several years of 100-percent revenue growth.

SuccessFactors allows human resources departments to outsource a number of tasks, ranging from compensation planning to employee reviews, succession planning, and goal and competency planning. For companies with tens of thousands of employees, it's unrealistic for their HR departments to do much more than hire, fire, and meet payroll. If nothing else, SuccessFactors provides HR departments with the appearance that they're on the ball.

SuccessFactors has raised an undisclosed amount of funding from prestigious firms, including Greylock Management and Canaan Partners. CEO Lars Daalgard struck out with his previous company -- the well-funded Ingenuity -- but is making up for it with SuccessFactors.

Meanwhile, SugarCRM is competing in the CRM market that Salesforce.com has thrived in and where Siebel, the grandfather of CRM software companies, has stumbled. The difference with SugarCRM's platform is that it’s built on open-source software. As a result, it is about half the cost of Salesforce.com, and it has the support of open-source software enthusiasts, who have given rise to numerous Linux-based companies, as well as the open-source MySQL database.

SugarCRM recently raised $5.75 million from Draper Fisher Jurvetson and Walden International. Its three founders and senior managers all worked together at Epiphany, a publicly-traded CRM company founded in 1997.

MegaPath Networks, while not an ASP, is another company that is benefiting from outsourcing – in this case, employee connectivity. As more and more connectivity options have arisen, it has become a time sink for IT departments to deal with everything from dial-up to wireless access and virtual private networks. MegaPath’s customers are businesses of all sizes, and the company helps them connect branch offices, mobile workers, and home-based workers to centralized corporate resources.

MegaPath has enjoyed standout growth. The company claims it was profitable in 2004, with revenues of $87 million, up 28 percent from the year before. And it has raised $16.5 million from Austin Ventures and Comcast Interactive Capital, among others. With the ranks of telecommuters and corporate road warriors growing every day, we think MegaPath’s growth prospects look bright.