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boston.internet.com: Will VistaSource Widen Applix's Horizons?

Apr 25, 2000, 16:20 (0 Talkback[s])
(Other stories by Gavin McCormick)

By Gavin McCormick, boston.internet.com

Hoping to steady a rollercoaster stock performance, Applix Inc. (APLX) of Westboro yesterday announced the spinoff of its Linux software division as a new subsidiary, VistaSource Inc..

Also to be based in Westboro, the new company will start with 65 employees and a $6 million investment from Applix. It will make Linux and application service provider software, starting with word processing, spreadsheet and a general office packages, with an eye toward finding its own venture funding and going public in the next two years.

"Applix had too many businesses under one roof," said VistaSource President Bernie Thompson. "A spinoff was essential for focused execution, as well as a clear message to our customers, our shareholders and ourselves."

Applix will be left with its e-business software division, which was responsible for more than three-quarters of company revenues ($9.3 million of $12.4 million) in the quarter ending in March. The company lost 7 cents a share in the quarter, a turnaround from a 4-cent-per-share gain in the first quarter of 1999.

Alex Goldsworthy, who last week was appointed Applix CEO to replace Jit Saxena, who was made chairman of the board, attributed the losses to slower than expected revenues for the company's e-business software "due to our inability to convert our pipeline in North America and Europe." Goldsworthy said the spinoff of VistaSource, which had been in the planning stages throughout the quarter, would help Applix focus on e-business software sales.

Applix shares have rolled up and down over the past year, from below 5 last May to a 52-week high of almost 25 in December, then sinking back to around 15 late last month. In the bear Nasdaq market conditions since March 24, APLX has lost about half its value, closing Monday at 7.31.

VistaSource, which last year was responsible for $18 million in Applix revenues, starts off with a tall order: competing with Microsoft, Sun Microsystems and Corel to sell office software. The company is hoping to capture a large share of sales growth among application service providers, companies that rent software and provide back-office services as an outsourced business.

Thompson is among those who are bullish on the ASP market, expected to grow mostly among small and mid-sized businesses. ASPs run software packages on central servers, allowing clients to use the services via the Internet.

"There is a dramatic seachange going on in the software industry, which will look quite different than the market in the 1990s," Thompson said, citing the growth in Linux operating system and other open-source software, the ASP market and the Microsoft antitrust case, which could result in the industry giant's breakup.

Open-source software can be modified and redistributed by other programmers. VistaSource is attempting to succeed with a hybrid business model, selling licenses that will allow customers to modify VistaSource's basic software code for their own use, but not to redistribute such modifications to others.

"Open-source will become a more important part of the market, but you'll start to see a shift of traditional companies toward this open-source/access model," Thompson said. "We intend to be a pioneer in this area."

The president also touted VistaSource's lead in the ASP market, saying the company's office software suite, ApplixWare 5.0, can be run on any browser. A salesman at an airport, for example, could get access to his company's software application using a basic airport Internet connection. Real-time document editing and other business collaboaration will also be possible using such Internet links, he said.

Among VistaSource's competitors for the so-called "thin client" and ASP markets: Sun,which sells a suite for Linux and other operating systems and is developing an ASP version of its software; Microsoft, which is developing a version of Microsoft Office that can be used on the Web; and Corel, which is planning to move heavily into Linux-compatible office software.

Thompson said Linux software is running on about 4 percent of business servers worldwide, with most of those customers working outside the United States. "We need to be international from day one," he said, saying VistaSource software is already available in Europe and Japan, with Chinese-language translations in the works.

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