by Gerry Blackwell [March 9, 2001]

So this is a postmortem on Hudson MA-based CMeRun Corp., an ASP aggregator that targeted consumer users and the SOHO businesses, and wanted to tap into ISPs as its distributors.

CMeRun isn't actually dearly departed—yet. According to founder and CEO Cameron Chell, the company is currently in a "holding pattern."

Chell is the high-flying entrepreneur sometimes credited with inventing the ASP model. He also started, and then sold off, FutureLink, the prototype pure-play ASP company.

Burnt worth
CMeRun may not be lifeless, but its staff complement has been whittled down dramatically, after executive defections and layoffs, its current roster includes about nine people—Chell, who operates other businesses, including Chell Merchant Capital Group, a financial officer, and a bare bones technical staff.

"We felt we had to pull in our horns a little and not burn a lot of money at this time," is how Chell put it. "We've definitely pulled out of aggressive marketing mode."

He has by no means given up on the concept, though, which is why the company continues to have a half-life, supporting a few pilot projects and maintaining relationships with ISVs and prospective future distributors.

"We still think it's going to be a model that works in the end," Chell said. "We absolutely firmly believe this is where the market will go. We just have to fight through it for the next year or so."

Summer stock
We wrote about CMeRun last summer when it was about to bring up its first pilot customer, Cyber Beach Communications Corp., a small ISP in Sudbury in northern Ontario.

It seemed like a pretty good deal. Cyber Beach would pay wholesale rates to CMeRun and expected to see margins of 25 to 30 percent on renting applications to customers. Start-up costs for ISPs, according to both Cyber Beach and CMeRun, were minimal.

CMeRun only had about 30 applications in its portfolio at the time, but it was adding more at a hectic pace. And it was signing up more ISPs too. So what happened?

Well, Cyber Beach isn't offering the CMeRun service today—or not that we could see—and the company's CEO didn't return our calls.

Channel lock
CMeRun in the end managed to sign up just five ISPs to "integration agreements" which, despite the information we presented last year, actually involved upfront costs to the ISP on the order of $200,000, according to Chell.

That was definitely one of the problems prohibiting ISP adoption of CMeRun's programs. Coupled with the fact that pursuing the ASP opportunity was never really a top priority for most ISPs and telecoms, CMeRun's other major target market. These companies were definitely interested, Chell says, but when money got tight, most had to push ASP plans all the way to the back burner.

"We've got to come up with a better business proposition for the ISP," he now admits.

But ISPs and telecoms not being able to find the funding to pursue new and uncertain business opportunities was only part of the problem.

In the pilot trials that CMeRun's handful of ISP distributors did mount, service providers only managed to muster a penetration rate of one percent among their customers.

Chell insists that the level of end-user take-up would have been enough to support its business plan, but only if the company could sign up lots and lots of ISPs very quickly—which it couldn't.

So why didn't consumers adopt the ASP model CMeRun was pushing?

It seems in some respects like such a good idea. Customers wouldn't have to worry about installing programs. They could try out applications for a month if they weren't sure they wanted to buy them.

Bandwidth block
Chell said that the real problem was with bandwidth, or lack of it. If you don't have a fast, always-on connection to the Net, the experience of using hosted applications is not so great, despite earlier reassurances to the contrary.

And most people don't have high-speed Internet service yet. CMeRun basically overestimated the rate of penetration of DSL service—which slowed when telecoms, CLECs and ISPs couldn't get funding for their build-outs.

We wondered last summer about the fact that most of Cyber Beach's customers were dial-up—though the company was also beginning to get some cable-modem customers.

CEO Tom Pollock conceded at the time that the experience would obviously be better for high-speed Internet users, but added, "I'm told by CMeRun that the service runs very well over dial-up."

Not well enough, apparently.

But even among high-speed users exposed to the CMeRun offer, the uptake was disappointing.

Chell believes this is because most of the customers who have high-speed service now are well-heeled, experienced users who already own many of the applications CMeRun was offering, and were comfortable in general with buying and installing programs.

"We never got into a consumer customer base that was using [high-speed Internet service] with a fresh mind as it were," Chell says.

So what will it take to get consumers to buy software this way?

Chell figures it will take broadband penetration of 30 per cent or higher. That he says will translate to 20 to 25 per cent of the market universe actually using a high-speed service all the time.

That's the kind of critical mass it will take, he now says, before the ASP model takes off in the consumer marketplace.

Deferred technology
Chell estimates it will be 18 to 24 months before we see that level of penetration. In the meantime, he hints that CMeRun may pursue the small and medium-size enterprise market.

He notes, for example, that the company's technology platform is now being used by British Telecom to support its small business ASP offering. "We have—in my opinion—an outstanding technology platform."

But for now, the company is in its holding pattern, still talking to ISVs, ISPs and telecoms, keeping an eye on the market. But not doing much of anything.

Live and learn.

—End