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2HRS2GO: Andreessen no reason to buy Loudcloud

COMMENTARY--The general consensus about Loudcloud seems to run along these lines: We don't know if it's a great company, but Marc Andreessen's name will attract some attention.

Don't be so sure of that.

Today was supposed to mark the public trading debut of Loudcloud, the brainchild of Andreessen and other Netscape refugees. However, lead underwriter Morgan Stanley Dean Witter says the IPO will be delayed to Thursday, because the snow that hit the northeastern United States prevented Loudcloud executives from meeting potential investors. It's a plausible excuse, but you have to wonder just how much Loudcloud needs the extra time anyway.

The price range of the initial public offering has already been cut once, which indicates a lack of interest. At the same time, the offering size was doubled, which tells you how desperately Loudcloud needs the cash.

Those factors are enough to make plenty of people leery, especially in a bear market. But folks who need more reason to doubt need look no further than the prospectus.

"We offer businesses a new class of Internet infrastructure services that address the challenges associated with deploying, maintaining and growing Internet operations for critical business functions," declares the company. "We generate revenue from the sale of services. These services provide the infrastructure, including the technology, data center space and operations services required to maintain the complex Internet operations of our customers."

Loudcloud's business model rests on a concept that companies such as Microsoft (Nasdaq: MSFT) and enterprise software vendors are reaching for: software as a service.

"Loudcloud is the leading software infrastructure service provider, offering a new solution for outsourcing global Internet operations," reads the "Overview" section of the corporate description on the company's Web site. "Loudcloud moves beyond hosting or managed services with our unique Opsware technology to automate many of the formerly manual tasks associated with the deployment, support and growth of Internet operations."

Whether you look at Loudcloud as a services vendor or technology provider, it is tied to the market for website hosting, application service providers and Web data center operators. And those venues, like the rest of the technology industry, have been in a funk lately. Akamai Technologies (Nasdaq: AKAM), the poster child for content delivery specialists, currently trades at more than 95 percent below its all-time high.

A company can overcome those doubts by piling up contract signings. Unfortunately, even $120 million in deals is no guarantee for Loudcloud.

"The amount of revenue we realize under these agreements may ultimately be less than $120 million," the prospectus notes. "For instance, revenue may not be recorded as a result of down time or other credits as described below. Additionally these agreements are subject to our standard termination provisions, including breach or insolvency by either party to the agreement. Finally, customers' ability to pay these amounts could become limited in the future based on their operating results."

Loudcloud, like all businesses, still needs healthy companies to buy its technology. And right now, the tech market is anything but encouraging.

Andreessen is supposed to be the name that can overcome those doubts.

His adherents hold him up as The Visionary of the online world, the man who saw the endless possibilities of the Internet and was the first one to capitalize on them. Critics deride him as a one-hit wonder, someone who stumbled and bumbled his way through the Netscape experience and sold out to America Online.

Both views give him too much credit. Andreessen's ability to see find commercial possibilities seems questionable, at best. It was Jim Clark who realized the potential of Internet software, not Andreessen, who was content to take a programming job after college. And Andreessen's one supposed hit, the browser, was a failure from a business viewpoint.

Andreessen has always seemed most satisfied with technology tools and network infrastructure software. His focus has always revolved around software designed to keep hardware and network functions running smoothly, but that's never been a foundation for long-term success, unless you count Novell (Nasdaq: NOVL), and you probably wouldn't, given the state of Novell these days.

The world's largest software vendors--Microsoft (Nasdaq: MSFT), Oracle (Nasdaq: ORCL), Computer Associates (NYSE: CA) SAP (NYSE: SAP), to name a few--get the bulk of their revenue from applications for daily business work, as opposed to functions that amount to glorified systems maintenance. But corporate processes have never held Andreessen's fascination.

That's too bad, because by all accounts, he has the brains and the contacts to do nearly anything he wants in the software world. He appears to be missing only one thing, but it happens to be the most important element: a head for business.

Investors these days look for that above all else. And that might be the biggest reason to doubt Loudcloud. 22GO

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