By Gary Flood
Klaus Besier is openly acknowledged as the man who made SAP AG’s American subsidiary into the monster it now is, building SAP America, Inc, from a virtually unknown company to the market leader in client/server business application software, with 1995 revenues of $710m. So when SAP’s Besier, then chief executive officer at the American subsidiary, announced he was quitting the German business software behemoth to go and work for a pipsqueak Massachusetts based start-up called Object Power Inc at the end of January 1996, all eyes turned to the newcomer, the company we now knows as OneWave Inc. Besier was indeed a great coup for OneWave – but an expensive one. To get him to sign, existing Object Power executives agreed to sell him 960,000 shares for $1.44m, but the whole golden handshake totaled $7.5m of non-cash expense. This was made up of $5.8m, representing the difference between what Besier paid for the shares and what their fair market value at the time was held to be; a $1m signing on bonus courtesy one of the controlling stockholders; and $775,000 as a hedge against Besier losing out stock benefits he stood to gain at SAP. It also agreed to lend him around $2.5m to pay income tax on all this. Besier’s compensation is no longer a line item for OneWave’s 1997 results, but there are still plenty of big numbers in there, and they all drip red. The company, heralded as a possible big winner out of the growth in Intranets and business over the Web, has had its stock whipped dumb, it is bleeding money, losing executive talent, and generally seems to be tanking. Yet at the time, Besier summed up why he’d walked from his existing, happy berth thus: The market opportunity for this company is as great as the one I saw for SAP in 1992 when I became its CEO. OneWave is a provider of Web-enabled software for the development and deployment of mission-critical business applications across an organization’s information technology systems and the extension of those applications to Intranets and the Internet. Known briefly last Spring as Business@Web, Inc, the Watertown, Massachusetts company had a very successful IPO last July, ironically enough in a week that some have marked as the end of the Internet IPO boom. It received nearly $43.4m from the public offering, and Goldman Sachs & Co, one of the bankers who took the firm public, were predicting $16m revenue for 1996 and over $34m for this year for the company. OneWave’s share price graph, however, has been heading south since October 1996, when it was still just over $15 – it is now at just under $2, up from its low of $1.50 but still light years from its 52-week post-IPO high of $21.50. And Goldman Sachs proved to have been a tad optimistic as regards those revenue predictions. For its full fiscal 1996, its first as a public company, ending December 31, OneWave showed revenues of $13.2m, up from $6.1m in 1995, and a fairly scary net loss of $12.3m, compared to a loss the previous year of $2.7m. It was the fourth quarter, though, where the company seems to have got broken: revenue was down from $3.03m to $2.34m, and net losses shot up quarter on quarter from $1.99m to $2.66m. What went wrong? A OneWave spokesperson told us that the company had become reliant on making its numbers by closing one or two big deals a quarter, so when the period’s megadeal failed to close, the wheels came off the Ferrari. In January, reeling from the bad fourth quarter, the company seems to have decided that its sales model was irretrievably broken. In its most recent 10-K this month posted on the Securities and Exchange Commission’s Edgar on-line database, it notes, In light of OneWave’s experience in the marketplace during the second half of 1996, the Company has recently adjusted its sales and marketing approach, offering to provide its customers with a combination of consulting services and software necessary to deliver a comprehensive solution… The Company believes that, in the long term, this change in approach will result in increased market penetration. However, revenues will likely be reduced in the short term as the Company makes its transition to the new sales and marketing approach. OneWave’s first quarter results, released April 17, showed revenue down from the same period in 1996 – from $2.38m to $1.51m – but net losses down significantly, from $8.5m for the first three months of 1996, to $2.4m. The consulting and education services element of the first quarter do not as yet reflect the change in emphasis, however – for the first quarter of 1996 software revenues were $710,000 and consulting $1.67m, while in the same period this year it sold less than half that much in licenses, only $300,000, with consulting only bringing in $1.21m. The change in emphasis has led to some realignments internally and the loss of some members of the management team, such as vice president of business development James Nondorf, who left by mutual decision in January. Headcount is also down generally, from 154 at the end of 1996 to 134 now. Some sceptical investors have wondered if the change to a more consulting led approach means the company doesn’t really have a product; there’s also a fear that without Besier the company doesn’t make any sense whatsoever, and there are recurring rumors that he may up ship for a OneWave partner, like Oracle Corp or Baan Co NV. To which OneWave replies that the move to a more consulting or solution led approach is the best way for it to build a long-term, sustainable, repeatable business model in a market which is increasingly confused and with a very technologically-wary buying community. Not only does OneWave have to compete with new and emerging players like still- private Haht Software Inc and Netdynamics Inc, SAP has also made moves to Web-enable its applications, and the SAP market remains of vital importance to Besier’s company. As for Besier leaving, OneWave points out that beyond his significant professional and personal commitment to his new company, he has a big financial commitment to making it work too – It’s in Klaus’ best interests to make sure OneWave succeeds. The company is continuing to finesse its sales model, enhance product – OneWave Enterprise version 2.3 is just now available, including support for Peoplesoft version 6.0 and compatibility with Windows NT version 4.0, and a Solaris port is also finally cut – and rebuild generally. As for the crushed stock valuation, caution is now the rueful company’s watchword. Until we can build a repeatable business model, we feel we can’t make any financial predictions, says the spokesperson. How are we, then, to interpret the decision of four major OneWave stockholders, including a director, Sundar Subramaniam, to sell a combined 7.75 million shares of their stake last week to a recently-founded New York venture capital firm, Avix Ventures LP, for $8m, a deal which means Avix now has a majority (51.7%) stake in the troubled enterprise? Avix speaks in terms of OneWave as being a sound long term investment; OneWave sees the deal as being mutually beneficial. How typical it is for a venture capital firm to hold so much of a public company’s paper at this stage of its life is perhaps a moot point – OneWave needs a period of stability to stabilise its sales model and reclaim customer and investor confidence, which may take a fair few quarters. So to a certain extent the gamble failed – Besier’s name and contact book alone has not been enough to guarantee significant shareholder value or sustainable sales for his new company. But surely the lesson for us all is that companies need time to be nurtured, find their feet and rhythm, and that the superheated Web investor frenzy of 1996 has done none of us any good. OneWave is no longer a potential tsunami. But it is not yet quite a Dead Sea either.
