The deal, which is expected to be announced on Tuesday, will align Critical Path with Japan's largest long-distance telephone company and one of the country's largest industrial and technology conglomerates. That will give the comparatively young U.S. email company broad leverage in persuading Japanese businesses to adopt the new joint venture's mix of Web message services, or so Critical Path executives hope.
"We didn't think we would get the amount of business we wanted quickly enough doing it ourselves," said Mike Warson, Critical Path's Asian business manager. "This gives us an immediate leverage point from a sales and marketing perspective."
Critical Path has been one of the most successful companies to provide outsourced Web email boxes in a now-crowded market, winning contracts with some of the biggest Internet sites and telephone companies in the United States. But it's recently been put under fresh pressure as newcomers to the business add services like voice mail and faxes to their product portfolios, and by customer service problems.
The company has responded with its own fax service, as well as an assortment of other services like calendar and data storage applications. But it's also looking at newly growing markets like Asia, where analysts say adoption of Web services is a year or more behind the United States.
Initially, the new venture--which hasn't yet been named--will focus on Critical Path's existing range of Web-based services, selling the full portfolio to other large Japanese companies. As in the United States, these customers will put their own brands on the services, so individual consumers will have little awareness of who is providing the underlying technology.
Already the new company has a few blue-chip clients on tap, including Japanese giants Fujitsu and Nikkei, according to Critical Path.
But because the Japanese market is more dependent on cell phone technology than its U.S. counterpart--NTT's mobile phone affiliate alone has close to 23 million users, far more than any U.S. company--Critical Path says it plans to move its services onto mobile phone platforms soon.
"We have a very compelling story to tell to wireless partners," Warson said. "We've got a huge internal initiative going, with (wireless) products close to release."
The company will be facing competition in the market, however. Commtouch, another email outsourcer, already provides some Web-based services for another division of the sprawling NTT.
And newcomers like Onebox.com, which are focused more heavily on the wireless and voice messaging market, will also be trying to sell their services in the Asian market, with particular focus on the profitable phone carrier market.
"We would expect to see (Critical Path) anywhere we go," said Ross Bott, Onebox's CEO. "But there is a huge number of customers out there. So we should both have a lot of fun."
Financial details on the joint venture aren't yet available. Critical Path executives said they will have seats on the new company's board of directors, but that Mitsui and NTT representatives will have more control over day-to-day management of the company. Ask Jeeves added to its roster of corporate clients today, signing on Fidelity Investments and Nike as clients.
Fidelity, a mutual fund company and online broker, will use Jeeves' natural-language query service on its Powerstreet site for personal investing.
Nike has deployed an "Ask Nike" engine, based on Ask Jeeves technology, on its home page to help visitors find customer service and product information.
In addition to its popular consumer service available at its Ask.com home page, Ask Jeeves has had considerable success outsourcing its service to large corporate clients. These include AltaVista, Compaq Computer, E*Trade, Martha Stewart Living, Microsoft, Office Depot, Toshiba and WebTV Networks.
Also today, uBid said it had signed up for Ask Jeeves' service.
OAKLAND--A networking start-up established by former Ascend Communications executives is taking strategy lessons from some of its much-larger competitors.
Zhone Technologies, housed near the shipyards here on the San Francisco Bay, next week plans to unveil "gateway" equipment that connects data networks to traditional voice networks. Later this year, the company plans to introduce gear for uniting many kinds of networking technologies.
Although the company is entering a highly competitive market dominated by giants Cisco Systems, Lucent Technologies and Nortel Networks, analysts say a substantive bank account and an acquisitive business strategy just may help it survive.
Mory Ejabat and Jeanette Symons formed Zhone following Lucent's $24 billion acquisition of Ascend in June 1999, incorporating the same month that the ink dried on the largest merger in the history of the networking industry.
"We didn't handle unemployment very well," Symons, chief technology officer at Zhone, said during an interview in the company's temporary offices.
Yet so far the duo has handled building a start-up with aplomb. Zhone has amassed $500 million in funding from the likes of Kohlberg Kravis Roberts & Co., Texas Pacific Group and New Enterprise Associates. The amount is believed to be the largest private placement of funding ever.
The start-up has taken that cash and used it to buy companies and their networking talent--a novel approach in an industry used to upstarts serving as technology "feeders" for acquisitive firms like Cisco.
Zhone offered to buy struggling telecommunications equipment provider Premisys Communications this past October and closed the deal in December. In November, the company also plucked Westlake, Calif.-based CAG Technologies, a firm that specializes in subsystems for networking gear.
The former acquisition could pay off sooner rather than later. Premisys already has $60 to $80 million in expected annual revenue from current products, according to Zhone executives.
Moreover, the new gateway product Zhone plans to ship by the end of the month began development at Premisys. Its introduction is intended to help Zhone win new accounts with communications carriers.
"It gives us a foothold to build our sales and marketing organization," Symons said.
But while Zhone tries to build the carrier accounts it craves, the company will continue to develop new technologies scheduled for release by the end of this year.
Striking an aggressive course, Zhone plans to focus on technologies for the "local loop," the ring of networks that connect residential and business users to sprawling nationwide network systems. Symons said the company hopes to simplify the current combinations of network technologies like cable, digital subscriber line (DSL), wireless and fiber through a single connection point, consolidating several types of technology into one box.
Analysts say Zhone may be targeting the right market. "It's a very hot, large market to be going after," said Hilary Mine, an analyst with industry consultants Probe Research.
But others remain skeptical of Zhone's strategy to deliver a single product for networks that vary widely in size, scope and capacity. They also say the expectations of the company could wither in a cutthroat environment with little patience for a start-up, no matter how rich.
"I think they're going to have a rough time," said Frank Dzubeck, president of consultants Communications Network Architects. "This is a very tough business they're entering."
"I think they need to be extremely aggressive in what they're doing," Dzubeck said. "But their expectations far exceed their prospects at the moment."
For Symons, it is the creation and evolution of a company that keeps her excited.
The Zhone founder can even be found answering the company's phone in the absence of a receptionist. "It's just fun and exciting to make a company happen," Symons said.
WASHINGTON--Red Hat, a developer of the Linux computer operating system, along with several of its executives, filed with the Securities and Exchange Commission to sell about 4 million shares of common stock worth $529 million.
Red Hat will sell 2.8 million shares and the selling shareholders, including several executives such as Matthew Szulik, the company's president and chief executive, will sell another 1.25 million. Szulik will sell about 39,000 shares, while Robert Young, the company's chairman will sell just over 320,000 shares, leaving him with a 12 percent stake after the sale.
Frank Batten is selling about 548,000 shares. Batten announced today he was resigning from the company's board, saying he wanted to devote more time to his venture capital opportunities.
Red Hat shares today rose 94 cents to $132.25. The announcement was made after the close of trading.
The company said it would use the net proceeds of the stock sale for working capital and other general corporate purposes including geographic expansion and possible acquisitions, though the company didn't mention any specific targets in the filing.
Earlier this month, the Durham, North Carolina-based company agreed to buy Hell's Kitchen Systems for as much as $102 million in stock to get its online payment-processing software. Red Hat didn't disclose the revenue of Pittsburgh-based Hell's Kitchen.
Hell's Kitchen software helps corporate customers sell goods and services over the Internet by processing credit card payments. Its customers include more than 150 Internet service providers, Web merchants and financial institutions. Last November, Red Hat agreed to buy closely-held Cygnus Solutions, a software company based in Sunnyvale, California for about $697.6 million. Cygnus creates Linux-based software.
The Hell's Kitchen acquisition is expected to be completed by the end of February. WASHINGTON--Satellite television companies, such as EchoStar Communications, are chipping away at the cable TV industry's dominance in the home TV subscription market, a new FCC report said.
Cable's share of the market fell to 82 percent as of June 1999, down from 85 percent a year earlier. Satellite TV companies' share now represents 12.5 percent of the home TV subscription market.
The satellite companies' share is expected to continue growing after passage of legislation in November that let the companies offer local TV programming, the FCC said. The satellite companies had said the inability to air local signals was the single biggest obstacle in competing with cable.
''I am encouraged by the growth of competition to cable,'' FCC Chairman William Kennard said in a statement. ''Competition is the best way to reduce cable rates for consumers.''
Still, he said more competition is needed, and that's why the FCC is working aggressively to implement the satellite TV legislation.
Cable rates for the most popular packages of programming were deregulated last March, and Congress and the FCC are hoping that increased competition from satellite companies will keep rates in check. According to the FCC's new report, cable rates climbed 3.8 percent between June 1998 and June 1999 while the Consumer Price Index, which measures inflation, rose 2 percent.
Cable companies attribute those price increases to increases in the cost of programming and costs associated with upgrading their networks to offer more channels and new services. In that same time period capital expenditures for upgrading their networks rose 13.2 percent and programming expenses increased by 16.3 percent, according to the FCC.
Hughes Electronics' DirecTV, the largest U.S. satellite TV company, has more than 8 million customers and EchoStar has more than 3.4 million.
Overall, 80.9 million households subscribed to a home TV service as of June 1999 compared with 76.6 million households in June 1998.
Shares of Echostar rose $1.31 to $90.25 and Hughes Electronics shares rose $9.13 to $119.63 in trading today.
Copyright 1999, Bloomberg L.P. All Rights Reserved. SAN FRANCISCO--Excite@Home will post its first profit when the high-speed Internet access company reports its quarterly financial results next week, according to executives.
Wall Street analysts have long projected that the fourth quarter of 1999 would be Excite@Home's first in the black, and executives don't plan to disappoint investors. A cable modem service provider and the nation's largest high-speed Net access firm, Excite@Home will report its earnings next Thursday.
"We made a commitment when we went public, which was in July of '96, that we would hit profitability at the end of 1999," Excite@Home chief executive Thomas Jermoluk said today following a speech here to the Bay Area Council.
"We've stuck to that and we've met our commitments every single quarter on our revenue and profit objectives. I can guarantee you that we've met them again," Jermoluk said.
The profits, if realized, would seem to come at a good time for Excite@Home. Many investors and high-tech executives postulate that Wall Street will not continue to value Internet stocks at extremely high levels unless dot.com companies begin to make money. Many Internet companies continue to bleed red ink.
According to First Call, a company that tracks earnings estimates, the consensus among 17 Wall Street financial analysts who cover Excite@Home calls for a "break even" quarter with earnings per share of zero cents. But, privately, Wall Street insiders say some analysts expect a slim profit that would amount to more than zero but less than 1 cent. The estimates range from zero to 1 cent, according to First Call.
Last quarter the company posted a pro forma net operating loss of $4.2 million, or 1 cent per share, excluding expenses for amortization of goodwill and other intangible assets.
Most analysts projected Excite@Home would finish 1999 with between 1 million and 1.1 million subscribers. The company topped 1 million users in early December. It will release end-of-the-year customer figures next week.
Stock in Excite@Home finished nearly 5 percent lower at $40.56 at the close of regular trading today, after posting significant gains yesterday. Shares have traded as high as $99 and as low as $33.13 in the past year.
NEW YORK--Eight major movie production studios, including Disney and Paramount Pictures, have asked a federal judge to stop three New Yorkers from distributing software that allows bootleggers to copy DVD film disks.
In a suit filed today in U.S. District Court in Manhattan, the studios charged the defendants have posted the software on their Web site along with messages encouraging DVD copying. The copying program, DeCSS, unscrambles a security code on DVDs that is supposed to prevent their duplication, said Richard Taylor, a spokesman for the Motion Picture Association of America.
"I am not responsible at all," said Roman Kazan, of Manhattan, one of the defendants.
Two weeks ago, a separate coalition representing the consumer electronics industry filed suit in California against 72 programmers and Web sites seeking to block the distribution of DeCSS, posted on the Internet by a 16-year-old Norwegian student in October. Earlier today, a hearing to decide whether a temporary restraining order should be issued was postponed. (See related story)
The New York suit, along with a similar one filed in Connecticut today by the motion picture association, are the first brought by the studios. The Connecticut suit, which was filed in federal court, names one defendant, Jeraimee Hughes.
The studios say the new technology enables unauthorized film copies to be transmitted over the Internet, stored in computer memories, and duplicated for sale and exchange. "Once these copies are in the hands of another user, the unlawful process can begin once again because the copies have the clarity and quality of the original DVDs," the complaint says.
"Yes, you can trade DVD files over the Internet," one of the defendants is alleged to say on his site, according to the complaint. "You can break the encryption on any DVD."
Kazan said he owns a company that hosts hundreds of Web sites, including two run by the other defendants, Shawn Reimerdes, also of Manhattan, and Eric Corley, of Setauket, New York. Reimerdes and Corley could not be reached for comment.
Also filing the suit were Twentieth Century Fox Film, Time Warner Entertainment and Columbia Pictures Entertainment, among others.
Copyright 2000, Bloomberg L.P. All Rights Reserved.
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