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Who was on the other end of the line? Jamcracker Inc. of Sunnyvale, Calif. The 16-month-old company, named for the boaters who use poles to break up traffic jams on India's rivers, pulls different software packages together and offers businesses online access to them through customized Web sites. Customers simply go to their company's Jamcracker Web page to reach e-mail, expense-account forms, account information, forecasting tools, and more. If anything goes wrong, one of Jamcracker's 70 customer-service reps is available day or night to take care of it. At the end of the month, Jamcracker sends the client a single bill, charging $15 to $120 a month per user, depending on the number and types of services used. The wide array of software programs and the Net's ability to allow business clients to quickly upgrade their systems online have made so-called application service providers (ASPs) like Jamcracker the next big thing in cyberspace. International Data Corp. estimates the ASP market will soar to $4.5 billion in 2003, up from $296 million in 1999. Forrester Research is even more bullish: It projects an $11.3 billion market that same year. Hundreds of companies, many of them offering single programs, have elbowed into the space. But investors are betting that Jamcracker, which packages software from 18 partners, will grab a sizable chunk of the market. Marquee finance names like Soros Private Equity Partners, Internet Capital Group, Morgan Stanley Dean Witter, and Goldman Sachs Group helped the company raise $100 million recently to add to the $42 million it raised in February. "PENICILLIN, NOT VITAMINS." What makes Jamcracker so attractive to a market grown wary of Internet plays? Investors point to the company's co-founder: K.B. Chandrasekhar, the Indian immigrant who struck it big with Exodus Communications Inc., a network-service provider in Santa Clara, Calif. After creating Exodus in October, 1994, Chandrasekhar saw it grow to a stock market value of $22.1 billion before vacating the chairman's seat in June. In addition, Jamcracker backers like the company's all-in-one package of software programs that clients can pick and choose from. Many businesses can't afford to keep up with the pace of change in the IT industry. That's especially true for the small to midsize companies of 100 to 2,000 employees that Jamcracker is targeting. For them, it's easier and cheaper to let Jamcracker and its 270 employees be their external IT department. Acting as a middleman, Jamcracker rents software from 18 partners to provide a diverse portfolio to business customers. Among the software providers: WebEx, which offers Web conferencing, and Employease, which makes a program for human-resource management. Jamcracker figures that small companies will use eight or nine of the programs in its bundle. The companies will benefit from lower prices stemming from Jamcracker's economies of scale, and software partners are spared the trouble of marketing to these customers. "The problem they're solving is a real problem," says Ken Fox, managing director of Jamcracker investor Internet Capital Group. "It's penicillin, not vitamins." Now they must persuade more customers to take their medicine. Since its February launch, Jamcracker has signed up 50 companies, many of them dot-coms and venture-capital firms. But that's still far shy of the 800 to 1,000 customers that Chandra says will make the company profitable. "The adaptation rate has been slower than projected," for all ASPs, says Corey Ferengul, senior analyst at Meta Group, a market-research firm in Stamford, Conn. "Companies are leery of outsourcing." BIG CUSTOMER CLOUT. Other analysts agree that it's a huge leap for firms to cede control of critical computer systems to outsiders. "It requires a lot of customization and a lot of trust for a company to do this," says Eric Klein, senior analyst at Yankee Group in Boston. One company that took an early plunge is First Analysis Corp., a venture-capital firm in Chicago. It uses Jamcracker to create a virtual private network that allows the company to share information with employees and partners worldwide. So far, "the service has been phenomenal," says Dan Smereczynski, senior system administrator at First Analysis. "An issue gets resolved in minutes." For instance, a password outage was fixed almost immediately, and Jamcracker service people followed up with four phone calls. Smereczynski says First Analysis saves about 20% on its IT bill. And it takes less time to resolve a problem through Jamcracker than it does by going to the software maker itself: Jamcracker has the clout of a large customer, technicians trained to deal with the particular programs, and direct access to the software makers' databases. But with the ASP market still in an early stage, the providers -- and their customers -- are still trying to figure out which business models will work. While Jamcracker acts as an outsourcer, competitors such as Agiliti in Bloomington, Minn., Candle in Los Angeles, and Loudcloud in Sunnyvale, Calif., offer on-site systems that would either prevent or limit the use of Jamcracker by their customers. So for Jamcracker to be successful, it has to clear this logjam first. |
