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Messaging firm Critical Path eyes new corporate strategy

The company's new strategy marks a realization, analysts say, that the market for outsourced communications features like email and voice mail will be strong--but it's not taking off quite yet.

Critical Path is building training wheels for the Web.

The Internet-based messaging company is hoping to persuade big companies to move their email, fax and other messaging services online. But while it waits for this model to catch on, executives say they've now decided to move their own Net-based services offline for those corporations that still want their services in-house.

Critical Path at a glance

HQ: San Francisco, CA  
URL: www.cp.net  
CEO: Douglas Hickey  
Chairman: David Hayden  
Employees: 750  
Annual sales: $16.2 Million  
Annual income: ($115.5) Million  
Market cap: $3.3 Billion  
Date of IPO: March 1999  
Ticker: CPTH  
Exchange: Nasdaq

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Bloomberg (2/18/2000)
Analysts say the switch in strategy marks a realization that the business market for outsourced communications features like email and voice mail will be strong--but it's not taking off quite yet. Critical Path and several other companies looking at the market are now hedging their bets while waiting for the Web market to build.

"That market hasn't taken off yet," said Mark Leavitt, a research director for the International Data Corp. "The fact that it makes sense and is probably a good idea doesn't mean that it will happen soon."

The move comes as much of the Web messaging market shifts under the pressure of growing competition. On Monday, Phone.com, in a move to gain traction with potential wireless phone carrier clients, bought unified messaging company OneBox.com. Several other email outsourcers have also been on the acquisition hunt, looking to expand their services into faxing, voice messaging and other areas.

The new push is also tied to the exploding interest in applications service providers (ASP). Such providers allow companies to download any software they need from the Net instead of keeping applications on in-house computer systems.

While the idea of getting email or other communications services online is now commonplace among consumers, driven by companies like Hotmail and Yahoo Mail, most businesses have yet to move in that direction.

"For the most part, companies and government agencies haven't yet made the radical changes that would be necessary to outsource their messaging business," Leavitt said. "The idea that outsourcing might give them benefits is just starting to percolate."

That's led Critical Path to shift its strategy. It's expanding its service beyond the Web model, essentially looking to lead large corporations down the path toward Net-based messaging software like email and faxes, but allowing them to take their own time.

Critical Path has made a series of acquisitions over the last few months to allow it to manage in-house email and communications software alongside its Web-based systems. Along with the infrastructure, its purchases have also given it close relationships with blue-chip customers such as GE and New York Life.

It will now offer those and other companies a package of traditional in-house email, fax and communications services alongside the online products, the company now says.

"We think we need to straddle the whole marketplace, rather than trying to change people's religion," said company chief executive Doug Hickey. "We think we've really increased the size of the market for Critical Path pretty dramatically."

Analysts say the switch is a good tactic, at least while waiting for big companies to get more comfortable with moving their software systems online.

"The main thing is that this gives companies flexibility," said Yankee Group analyst Chris Selland. "They'll have a range of options now."

With more than 50 million mailboxes in operation, and close relationships with several big U.S. telephone companies as well as online firms, Critical Path is one of the largest Net messaging firms. It recently expanded its operations overseas, creating a joint venture with Japanese giants NTT Communications and Mitsui to offer Web messaging in Asia.

Its successes have been marred by some high-profile email outages that have locked customers out of their mailboxes, however.