Canadian Company Offers Year 2000 Giveaway

Canadian Company Offers Year 2000 Giveaway

By Nick Wakeman
Staff Writer

A Canadian software company is banking on a product giveaway and growing pressure on agencies to finish their year 2000 work to grow its business with the U.S. government.

FreeBalance Inc. of Ottawa, Canada, plans to give away financial management software worth $4 billion, or about 80,000 units, to agencies racing the clock to make their systems year 2000 compliant, said Kevin Higgins, the company's president and chief executive.

The company began giving away five-user copies of the core component of its software suite Feb. 2, Higgins said. The software contains appropriation, budgeting, general ledger and expenditure control functions.

The payoff for FreeBalance will come from agencies that buy the firm's support services and from licensing fees the company collects from users beyond the first five who use its free product. Another source of potential revenue is agencies that purchase other FreeBalance products and services, which complement the giveaway product.

"From day one we have focused on the public-sector customer," Higgins said. "We think the sheer size of the market makes it big enough to support a large company."

FreeBalance was formed in 1997 out of Linktek Corp., Ottawa, Canada, with $2.4 million in venture capital from TechnoCap Inc., a Montreal-based fund. In 1997, the company had about $5 million in revenues with the Canadian and U.S. governments, Higgins said. Some of its U.S. customers include the Army, the Food and Drug Administration, the Navy and the Treasury

President and Chief Executive: Kevin Higgins

Headquarters: Ottawa, Canada

Founded: 1997

1997 revenues: $5 million

Products: Financial management software

Higgins' goal is to grow FreeBalance into a $100 million-plus company over five years. And year 2000 business with the U.S. government will play an important role in that growth, he said.

While not a software that fixes year 2000 problems, FreeBalance's products can be quickly and easily installed, Higgins said. "With the year 2000, fast is going to be a key discriminator," he said.

The company's product giveaway strategy also is a key part of FreeBalance's push to form partnerships with systems integrators, especially companies involved in business process re-engineering and project management, Higgins said.

So far, FreeBalance has worked with Coopers & Lybrand, New York; and several smaller firms such as CM Inc., Markham, Ontario, and New Systems Solutions Ltd., Ottawa, Canada, Higgins said.

But with agencies under no obligation to buy any of the extras, some analysts said, the FreeBalance approach is somewhat risky.

"That transition from a free product to a paying product is going to be their biggest obstacle," said Payton Smith, an analyst with the research firm IDC-Government, Falls Church, Va.

"They are trying to follow Netscape's footsteps and buy themselves market share," Smith said.

The company has picked a good target market in the government to pursue - project managers who need a financial system to track and develop their budgets, Smith said.

Kevin Higgins, FreeBalance Inc. president and CEO FreeBalance Inc.

At this level, many agencies have systems that managers have developed themselves using off-the-shelf spreadsheet programs, Smith said. There also are few companies that concentrate on selling to this niche, he said. Thus, FreeBalance "could create their own market," he said.

But long-term success will depend on moving upstream to more enterprisewide applications, Smith said.

That move is in FreeBalance's plans, Higgins said. In Canada, the company has several enterprisewide projects, and FreeBalance will be getting on the General Services Administration schedule this spring with financial management products for larger applications, he said.

Government agencies are simply running out of time to fix their year 2000 problems, according to Higgins.

In late January, the director of the Office of Management and Budget, Franklin D. Raines, sent a memorandum to agency chiefs accelerating the deadline for all systems to be 2000 ready.

Raines set a new deadline of March 1999; the earlier target had been November 1999 for agencies to complete their work.

By giving away its core product, FreeBalance can help agencies avoid delays, said Higgins, who also is betting that the year 2000 will cause a shift in relationships between the government and its vendors.

Those companies that help the government get through its year 2000 problem will be the ones that win future work, Higgins said.

"We are in this for the long-term view," he said. "If we can provide value, we stand a good chance."

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