Update: Agillion going under

AUSTIN, TEXAS - Agillion is the latest application service provider to fall victim to a tough funding environment, this week announcing it would lay off all but a handful of employees and put itself up for sale, according to published reports.

The company, which makes customer relationship management software for small and midsize businesses, is laying off 25 of its 45 employees, according to the reports. James Travers, who took the helm of Agillion in November, told the Austin Business Journal that Agillion would continue to service existing customers, but would not pursue new clients.

The Austin American-Statesman reports Travers plans to resign after failing to help the company raise enough money to stay in business. Calls to Agillion from Network World were not returned, but Travers this week told the Business Journal that Agillion had secured commitments for 70% of the funding it needed to continue operations for the next 12 to 18 months. Other investors, however, stalled - and when the balance of the funding fell through, all the investors pulled out, Travers said.

"It's not surprising that just in the past two weeks, with the way the market has been going, that venture capitals or any kind of funder would seriously look again at what they're investing in and what they're committing to," says Diane Myers, program director of ASP Competitive Strategies at market research firm Stratecast Partners.

She says ASPs are especially vulnerable as the economy tightens, and firms that haven't secured funding by now are likely in trouble.

"This is something we've been talking about, really since early January: it is going to be survival of the fittest in the ASP world," she says. "I think there are going to be quite a few either fire sales or bankruptcies."

Myers believes many lesser-known ASPs have probably fallen by the wayside without much notice. Agillion, however, is better known because of its founders: former Tivoli CEO Frank Moss and BSG Systems founder Steve Papermaster.

Moss has not been operationally involved with the company for months, but Papermaster has remained as a board member and reportedly will oversee the sale of the company.

Travers told the Business Journal that Agillion isn't in active negotiations with a buyer, but is considering several of its strategic partners. Agillion's partners include IBM, Office Depot, Cisco and the Elibrium division of ClickAction.

Agillion's flagship product, CustomerPages, is Web-based customer management software that includes collaboration tools and lets companies communicate with their customers using personalized Web pages for each client. Agillion was using its partners as a channel to deliver the service to small and midsize businesses.

Agillion raised $40 million in a 1999 first round of funding from investors that included Goldman Sachs & Co., Cisco and Morgan Stanley. The company cut its 100-member staff in half in January in an effort to reduce costs, but it wasn't enough. Myers says liberal spending, such as on a Super Bowl advertising spot 2 years ago, is partly to blame.

With this week's development, Agillion joins other well-known ASPs like Pandesic, a joint venture between Intel and German software firm SAP, that have had to close their doors. Other ASP casualties in recent months have included Red Gorilla, HotOffice.com and iSearch.

Agillion's troubles highlight an important consideration for enterprises considering an ASP, Myers says.

When choosing an ASP and negotiating a contract, "there should be a clause or some kind of contingency of what happens if you go out of business," she says. "How do I get my data back? What's the emergency exit, so to speak."

Update: Agillion going under

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