November 14, 2001

VA spin-off releases first product, aims for profit

Author: JT Smith

- By Grant Gross -

A Web services company that was bought by VA Linux last fall, then sold back to one of its founders this summer, released its first product last week and is projecting profitability any day now.

XAO Inc., a privately held spin off of VA Linux, announced the release of the XAO 1.0 Web server, a Web-services software package based on Apache. According to the press release, "XAO 1.0 allows companies to integrate data quickly from disparate sources such as relational databases, legacy applications, ERP systems, and other application servers and make them available in a standardized fashion. The resulting information or system can then be made available as a web service or in whatever data format is needed for the customer." (VA Linux owns NewsForge.)

XAO 1.0 is released under the XAO Open License, basically a copy of the Sleepycat License except for the name change. XAO, the company, is also pitching a host of consulting services, including deploying "Open SourceForge," a non-proprietary version of VA's SourceForge collaborative development package.

Brian DeSpain, CEO of XAO, says the Open SourceForge service isn't the company's main focus and won't compete with VA Linux. "We got a couple of inquiries about deploying the Open Source SourceForge system," he says. "We use SourceForge internally and have found it a good tool. One of the sales guys suggested we put it up on the Web site and see if we get any more inquiries. For $25,000 turn key we install and customize it for a company. It's entirely incidental revenue and not our main focus.
We just know the program and like it."

DeSpain respects his former employers but also seems mystified about why VA parted ways with what he says was a profitable venture. XAO was founded this June, after DeSpain sold his Brave New Worlds Inc. to VA back in September 2000. DeSpain was leader of e-commerce professional services, the team that built and deployed e-commerce products using Open Source software.

DeSpain says his company is close to a profit right now. He expects to turn a profit in November after a couple of months of profits and a couple of months of small losses since the company was relaunched in June. "We should be profitable thereafter unless the economic climate radically changes," he adds.

DeSpain says he disagrees with VA's decision to focus its energies on SourceForge, but he acknowledges that VA was helpful with the transition back to a private company.

"They offered us the opportunity to buy back our company which we did," he says. "Keep in mind that throughout the time we were a division, we were posting some pretty solid revenue numbers and were profitable ... So it really wasn't a difficult decision for us to buy back the company. VA did want us to succeed as an independent
entity so they helped us along."

DeSpain obviously sees potential for his business model, where VA viewed it as a "shopping cart" service, he says. "... We had a long-running research and development project in web services and XML dating back to January of 2000, well before it was on the radar screens of most companies. That R&D coupled with a large contract we landed in February deploying an e-commerce/web services project gives us a competitive
advantage in the marketplace. We have already dealt with many of the issues
with web services ... that other companies haven't even begun to deal with."

XAO's business plan calls for the company to focus on Web services and XML. In the next six months, the company plans to release more modules for the XAO product, "ensuring compliance with a wide variety of XML standards and
business applications," DeSpain says. "Our business plan focuses on the Fortune 500 and the middle market companies where our message of avoiding single vendor
lock-in through Open Source while being built around the world's leading Web
server has begun to gain traction. Nearly every company we talk with has
some single vendor lock-in disaster story."

DeSpain sees a wide group of potential customers for XAO, which can be customized to create several kinds of business-related Web-based services. He gives the example of one current customer, which replaced a legacy wholesale insurance application
with XAO's customized Foundation Server customized. As a result, the company's core business processes are Web enabled. XAO's target markets include insurance, energy, distribution and manufacturers.

"There is wide application of our software in some very
different markets," he says. "I believe its a real testament to the strength of our
platform. We offer companies the ability to put their data where they want
to put it and don't lock them in. The relational database layer should be
largely invisible to enterprises, they should be able to move their data
seamlessly from one platform to another. Our Foundation Server offers them
that ability, along with the ability to marry that data with modern XML
standards. We feel that's a pretty powerful value proposition."


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