Software Shakeout

When USinternetworking Inc. (USIX) was launched in April, 1998, investors swarmed like yellow jackets around a honeypot. The Annapolis (Md.) outfit was a new kind of company--dubbed an application service provider--and it promised to transform the way software had been used by corporations for more than 30 years. Instead of selling customers large and complicated packages, USi would provide them with instant access via the Web to the software packages from such established software makers as PeopleSoft Inc. (PSFT) and SAP (SAP). No fuss, no muss. To venture capitalists and Wall Street investors, it seemed like a blockbuster idea. They bet nearly $500 million on the company.

Unfortunately, USi was almost as good at spending money as it was at raising it. By last October, only $60 million was left and the company was burning through a hair-raising $80 million a quarter. USi's stock, which had once topped $73 per share, had skidded into the single digits. The fate of the company rested on winning a $50 million loan from General Electric Capital Services Inc. It got it, along with $270 million in additional private financing from the likes of Microsoft Corp. (MSFT)