Hostworks launches revenue share business model

Tim Lohman | Feb 7, 2007 3:42 PM
Hostworks has announced a new business model which will see it exchange its services for an equity stake or revenue percentage in its customers’ businesses.
Hostworks has announced a new business model which will see it exchange its services for an equity stake or revenue percentage in its customers’ businesses.

The enterprise application outsourcer's new model aims to assist in accelerating the market entry of promising new projects from existing companies, start-ups and other fast-growing businesses.

Explaining the new approach, Hostworks commercial director Gary Thomas said current and prospective clients had indicated strong interest in a revenue share model.

“The attraction for them is twofold: it preserves their precious capital in the early stages of their business or divisional growth; and it provides IT services capacity on-demand at a fixed percentage of their revenue, thus avoiding lumpy, unpredictable IT costs,” he said.

Thomas said that the new model provided an element of risk for Hostworks, however the company’s existing investments in facilities, skills and connectivity made it a relatively low-risk approach.

“In terms of reward, the attraction for Hostworks is that if we are successful in partnering with strong growth companies... [then] income from the revenue share model can deliver a multi-million-dollar revenue stream within the next three years.”

To further mitigate risk the company has laid down strong eligibility guidelines for potential revenue share customers.

These include a proven management team, a high-growth business model that requires critical application management, a clear and sustainable competitive differentiation, the ability to capture greater than 50 percent market share of a large market within two years and annualised sales of over $15 million within two years.

“The ideal revenue share customer is a business that relies on one or more significant enterprise applications that can be delivered as an online service, with strong competitive positioning in a fast growing market,” Thomas said.

”The range of potential online applications is broad, from customised Web applications to standard third party enterprise applications including finance, CRM, and procurement from vendors such as Oracle and SAP.”

Thus far the company has signed revenue share agreements with companies in the entertainment and telecommunications industries, he said.