InformationWeek

March 27, 2000

Solution Series: USi
USinternetworking Rides The Wave
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USinternetworking is counting on more executives like Jaffe to boost its reputation. The company has been at the forefront of the ASP market, providing packaged software and custom Web-based hosting solutions for enterprise relationship management, E-commerce, human resources, data warehousing, and financial management. USinternetworking has eight application partners for its Internet Managed Application Provider service--Ariba, BroadVision, Lawson, Microsoft, Niku, PeopleSoft, Sagent Technology, and Siebel Systems. McCleary says the company has no plans to add more applications in the near future.

"USinternetworking has been one of the pioneers in building market awareness and doing a lot of branding campaigns," explains Bill Dering, an analyst with C.E. Unterberg, Tobin. "They have a first-mover advantage in the market."

With its infrastructure, business model, and application offerings in place, USinternetworking has to execute on its value proposition. Instead of a customer putting $1 million up front to build a human resource, E-commerce, or accounting service, USinternetworking makes the investment on behalf of the customer and guarantees performance using service-level agreements. USinternetworking manages the machines and the infrastructure, giving clients the functionality of the software without making the capital investment. "They don't have anything at risk, in essence," McCleary says. "Every month of a 60-month contract that we're providing good service, they pay the monthly invoice. If we have problems, then they get service credits."

USinternetworking's other main selling point is the rapidity with which it can implement applications. Liberty Financials' Jaffe says USinternetworking had four Web sites up and running on Sun Solaris E450s in less than five months. In the past, Jaffe's record was one site in five months.

To ensure this level of service in a tight labor market, USinternetworking recruits aggressively from in-house IT operations, which also gives its employees insight into how their customers operate. Like many high-tech companies, USinternetworking also ensures high retention by offering stock options to employees.

What's been surprising about USinternetworking's emergence as a leading ASP is the size of its customers. The company's target market was midsize companies with $250 million to $1 billion in revenue--companies that wanted the latest applications but didn't have the resources or the skilled personnel to pay huge up-front licensing fees and then go through an 18-month implementation process.

Instead, 35% of USinternetworking's customer base comes from large companies--or, more precisely, the subsidiaries, business units, and divisions of large companies. "They have been given the authority and autonomy to make decisions like this on their own," says McCleary, citing BASF subsidiary Knoll Pharmaceutical, with $600 million in revenue, as an example. Knoll brought in USinternetworking to maintain its enterprise relationship management software from Siebel Systems. McCleary says USinternetworking's model makes it easy for subsidiaries to choose the ASP, since it requires no additional hiring or lengthy selection process.

The other market spurring USinternetworking's growth is dot-coms, which are drawn by a financial model that lets them avoid huge up-front licensing fees and spending on an internal IT team. "With customer acquisition costs being very, very expensive in the Internet space, we wanted to keep our expenses down," says John Vogus, founder and CEO of AllBooks4Less.com. Equally important, he says, were the highly skilled staff and applications it gained that it otherwise couldn't attract. USinternetworking has implemented several applications for AllBooks4Less.com, in cluding Microsoft Site Server technology and WebTrends Enterprise system software. Vogus wouldn't reveal his monthly fee but says it's much less over the life of the contract than if he had to purchase and lease the elements outright himself.

USinternetworking knows that it will succeed or fail on its ability to deliver top-quality service. Toward that end, it has created a flat organizational structure that reduces the number of layers between senior executive and clients. Each application USinternetworking supports has a group president with senior, decision-making authority. "We push them down close to our customers," says McCleary.

Clients say this structure yields a high level of access, where they can sit down with senior executives to discuss what works and what needs to be changed. Vogus says he's met with McCleary, chief operations officer Andy Stern, and other top executives and told them exactly what was working well and what was off the mark. "I don't think the CEO of USinternetworking is really down in the trenches, worried about whether or not my back-end search function is working correctly," Vogus says. "But one of the reasons they're growing as a company is that they're able to see things from their clients' eyes."

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