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Weekly Review: Aggregators Out, Integrators In By Phil Wainewright January 14, 2002 After last week's layoffs at leading aggregator Jamcracker and the closure of smaller rival vJungle, one of the ASP industry's most troubled categories showed signs of being in terminal decline. Yet appearances — as ever — can be deceptive. Other stories in last week's news demonstrated that the concept of service aggregation is alive and well, however sickly the first generation of pureplay practitioners may be. Words for Thought "Jamcracker is burdened with having to maintain both a prestigious corporate headquarters building and a carefully nurtured self-image as an industry leader, while undertaking a substantial reworking of its business model to adjust to the utter absence of a market for ASP aggregation as originally conceived." In view of all the inflated expectations that surrounded the ASP model two years ago, the woes of that first generation of ASP aggregators should come as no surprise. They suffered from what you might call leveraged expectation — since they aimed to aggregate services from multiple ASPs, they expected to multiply their revenues as the sector boomed. When the boom turned to bust, their high ambitions came plummeting down to earth even faster than those of their partner ASPs. Speak Out Is it the end of the aggregator as we know it? Give us your feedback at the ASPnews Discussion Forum Aggregators discovered how quickly what they had once believed to be the blessing of plentiful VC funding could become a curse. Encouraged to spend lavishly on an early landgrab of market share and mindshare, the liabilities thus acquired left them cruelly exposed when investors suddenly started demanding evidence of a path to profitability. Detecting the Early Warning Signs There were early warnings of what was to come when former time and billing ASP Red Gorilla suddenly folded in October 2000, just weeks after announcing a last-ditch contortion in its business plan to become a private-label aggregator. Another early casualty was BAport Technologies. Originally the linchpin of Dell's online service offerings for small business, it closed up shop in the fall of 2000 after failing to raise second-round funding. Other companies launched that year with an aggregation model have managed to struggle on, including desktop outsourcer Centerbeam, the beneficiary of a $115 million second round, and Rivio, launched under its earlier name of Biztro on the same day as now defunct consumer market aggregator cMeRun. But nowhere has the ill effects of VC funding been more visible than at Jamcracker, which debuted the same day as Marc Andreessen's similarly hobbled Loudcloud venture — see Star startups host apps. Founded by KB Chandrasekar, the co-founder of then-mighty Internet hosting provider Exodus Communications, Jamcracker subsequently won more than $100 million in second-round funding, backed by a rollcall of top investors including Soros Private Equity. Jamcracker Puts on a Healthy Face Last week's layoffs of some 30 out of 180 staff is the company's third downsizing in the past year. Jamcracker is burdened with having to maintain both a prestigious corporate headquarters building and a carefully nurtured self-image as an industry leader (supported by selfless work on a number of industry standards bodies), at the same time as undertaking a substantial reworking of its business model to adjust to the utter absence of a market for ASP aggregation as originally conceived. At first sight, it may seem surprising that the market has proved so barren, since integration of multiple applications has always been the achilles' heel of the ASP industry. Few early ASPs had the scale to attempt to take on the entire IT needs of their target customers (and, in any case, persuading prospects to risk all-or-nothing from the outset was never a very compelling sales pitch). For those reasons, there was always a demand for integration that had to be filled, either through standalone integration of the ASP's offerings with the customer's existing on-site IT or by teaming up with other ASPs that offered complementary solutions in order to round out a complete integrated offering. Continued on Page 2

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