Monday, July 2, 2007

Distribution model pays off for OMS SafeHarbor

By Christopher Calnan

Two Lowell entrepreneurs have translated the success of their first tech company into a niche business that provides electronic delivery software to some of the industry's giants.

Brothers Keith Caveney and T.J. Caveney founded OMS SafeHarbor Inc. after selling On Demand Solutions Inc., to CMGI Inc. in a 1998 stock deal worth $30 million. In 2000, the two founded Online Marketing Services to help market the technology companies in which they were investing. The company then evolved into an electronic software and license delivery company, producing software for customers such as Hopkinton's EMC Corp., Bedford's MRO Software and California's Hitachi Data Systems.

Unlike traditional software models, in which developers package their enterprise software and ship the product to business customers, electronic software delivery (ESD) sends applications electronically along with the licensing codes needed to operate them. It differs from on-demand software, a model in which applications are hosted offsite and customers pay a monthly subscription fee.

OMS sells 50 percent of its software to vendors who license it for electronic delivery. OMS serves as host to the other 50 percent of its customers.

Last week, OMS SafeHarbor signed its latest client, an Israel-based company whose name executives won't disclose.

The 20-person company now reports having 20 customers and approximately $5 million in annual revenue, said T.J. Caveney, vice president of marketing and sales.

By 2008, 50 percent all enterprise software will be delivered by electronic software distribution services, and 80 percent of all consumer software will be delivered by ESDs, said Laurie Wurster, a research director for Gartner Research.

The figure will be higher among smaller vendors because the $5 million to $6 million it costs to develop in-house electronic delivery systems isn't worth the investment for a small number of titles.

The rising adoption rate of ESD is something the Caveneys expected when they began developing their product in 2002.

"We made a bet that it was going to happen," said T.J. Caveney. "Technology and software can and would change how (vendors) deliver their digital assets."

Competitors in the space include the major software vendors who perform the electronic distribution themselves and California-based Intraware Inc., a publicly traded company founded in 1996. In April, Intraware reported fiscal 2007 revenue of nearly $11 million.

Since the Caveney's have self-funded OMS SafeHarbor, the push to attract large customers such as EMC is an important part of the company's business strategy.

"We need big companies because we need them to pay us a lot of money," T.J. Caveney said.

One such customer, Cadence Design Systems Inc., is a California-based electronic design automation company that reported revenue of $1.48 billion last year. It's been delivering software to customers electronically since the mid-1990s, said Henry Salvia, senior operations manager.