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Technically speaking: a few questions facing Pittsburgh's emerging industry
Sunday, April 09, 2000 By Ken Zapinski, Associate Editor/Business
When events move very quickly and new ideas can transform an industry seemingly overnight, it's tough to say where things will be in 12 weeks, let alone 12 months.
With that disclaimer out of the way, here are some of the pressing questions facing Pittsburgh's technology community this year:
Will FreeMarkets make its numbers? Pittsburgh's favorite online business supply auction business was the PG's top performing company of 1999 largely on the strength of its dramatic December debut on the Nasdaq. But CEO Glen Meakem and his crew will have to prove their mettle this year.
Morgan Stanley Dean Witter Internet analyst Mary Meeker has set the bar for 2000 at revenue of $38.2 million from a client base of 56 companies. That means FreeMarkets will have to boost its revenue by 83 percent this year and increase its client base by two-thirds. Investors will turn vicious if the company misses the mark.
The stock lost roughly half its value in the first quarter, after General Motors, its second-largest client, announced it was pulling its business to set up its own online marketplace. Even FreeMarkets' better-than-expected fourth-quarter results couldn't stem the free fall.
Since then, Web-based marketplaces have sprung up in the auto, aerospace and retail industries, each eating away at FreeMarkets' universe of potential customers.
Meakem is positioning his company so that it can sell its corporate clients surplus goods in addition to helping them purchase supplies. FreeMarkets snapped up a pair of established players in the surplus-sales industry last month to get a leg up in the game.
But take note: One of the sellers took $18 million in cold hard cash, instead of FreeMarkets stock.
Will anybody want what CoManage is selling? The Wexford software company founded by two former Fore Systems employees has been touted as one of the region's hot up-and-comers, and its energetic CEO Dave Nelsen has been a tireless champion for Pittsburgh's high-tech future. Not bad for a 2-year-old company that is just now collecting its first dollar in revenue.
CoManage finished its test version of its computer network monitoring software in December. Nelsen said it expects to announce a $1 million contract from a genuine, money-paying customer next month. From all signs he can see, "it's going to be a hit in the marketplace. We have essentially a $20 million bet."
"It will be a critical year for customer acceptance" of the new product, said Parker/Hunter senior vice president Tim Slevin. "But that's a great market."
Will the new-look Cable Design Technologies catch fire? The profit-making Green Tree company builds infrastructure for one of the hottest tech areas around -- the optical networks that move bits of data around as light. So why hasn't the stock skyrocketed? "I think it's a reasonable expectation when you look at what they're doing," said James R. Sober, director of research at Hefren-Tillotson. "I think they're well positioned, and they should be one of the top performers."
Not that the stock has done badly. It has nearly doubled over the past six months. But if CDT's new investor relations director Charles E. Mazur Jr. is successful in getting Wall Street analysts to see the wire-and-cable manufacturer as a New Economy darling instead of an Old Economy holdover, watch out. When Tollgrade Communications caught the attention of tech investors late last year, it saw its shares go up almost 600 percent in six months.
Will the Wang brothers ever sit still? First, youthful Carnegie Mellon University graduates Henry and Tommy Wang wanted to build a local Web directory company (hence, their original company name -- Pittsburgh Direct Technology). Then they morphed it into a profitable computer consulting company. Now they've changed the name to iVenture Labs.com and turned their North Oakland headquarters into a hothouse to nurture promising tech ideas. The Taiwan natives, ages 26 and 23 respectively, are hyper-intelligent and hyper-competitive, so don't bet against them.
Mayor Murphy has made two trips to North Oakland for Wang-related media events this year to bask in the reflected glory of their success and to ensure that the brothers and their ideas stay here. Already, at least one big national name has come sniffing around to buy them up. Don't be surprised if you see some sort of investment by or alliance with a recognizable tech powerhouse before the end of the year. Which brings us to the final question...
Is Pittsburgh's new growth industry growing companies that want to grow other companies? The Wangs' new venture is what's known in the industry as an incubator, and everybody seems to want one. Instead of just providing money as a traditional venture capitalist would, these new entities help with everything from providing office space to hiring employees to make it easier to take an idea from the back of a napkin to the marketplace.
Redleaf, a venture capital/consulting concern based in California, opened an office in Pittsburgh last year.
Start-up incubator Zlingshot is closing in on its first couple million of dollars in funding. Former Wall Street Journal columnist Tom Petzinger belongs to a group, LaunchCyte, looking for financing. Sean Sebastian, fresh off the success of his original Birchmere venture capital fund, is starting his own incubator. iGate Capital Corp. is giving a boost to CMU students with its entrepreneur-in-residence program. And former WiseWire-turned-Lycos executive Rob Frasca is making a partial return to his old hometown as his new company, Internet Venture Works, opens its first branch office in Pittsburgh.
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