AT&T buys poster child of ASP boom years

USinternetworking, which lit the fuse on the ASP boom when it stormed to a 173% gain and a $2.9 billion valuation on the first day of its NASDAQ IPO in April 1999, was acquired yesterday by AT&T for $300 million.

Back in 1999, Annapolis, MD-based USi was the East Coast cheerleader for the nascent ASP industry (its bitter rival was Silicon Valley-based Corio). But when boom turned to bust, USi filed for Chapter 11 bankruptcy protection in January 2002. It emerged later that year in a buy-out by private equity group Bain Capital, which promptly merged it with another East Coast ASP pioneer it happened to own, Interpath. Later, USi bought a California-based ASP, Oracle specialist Appshop, reaching a scale that finally allowed it to return to profitability in 2005. Meanwhile Corio, which had somehow managed to avoid bankruptcy in the bust, was acquired by IBM in January last year for $182 million.

Now USi has taken its version of the ASP model back where it belongs, into the managed services belly of an archetypal telecoms giant. USi and Corio both typified what I like to call the SoSaaS model; taking existing licensed applications such as Peoplesoft, Oracle Financials and Siebel and hosting them in a data center. It's still the same old software, but hosted as a service. Of course there's a business opportunity for that kind of managed application outsourcing, but it's not the game-changing opportunity that is being realized by the likes of Salesforce.com, NetSuite, WebEx and Employease, who use a completely new breed of software, designed and built from the ground up to deliver applications as online services.