Loudcloud to Sell to EDS

SAN FRANCISCO The AP is reporting that in yet another sign of the high-tech industry's humbling times, Web browser pioneer Marc Andreessen abandoned his ambition to build a Web services giant Monday and agreed to sell most of his latest brainchild, Loudcloud Inc., to computer systems consultant Electronic Data Systems.

Plano, Texas-based EDS will pay $63.5 million in cash for Loudcloud's primary business of managing and developing Web sites for other companies.

EDS also agreed to pay $52 million during the next three years to use a Loudcloud product called "Opsware" -- software meant to automate information technology departments. Sunnyvale, Calif.-based Loudcloud is changing its name to Opsware in an attempt to survive as a much smaller software specialty company.

Monday's sales price represents a small fraction of the $306 million that Andreessen and Loudcloud's other co-founders have raised from investors since starting the company in September 1999.

Loudcloud's investment stockpile included $150 million raised in a March 2001 initial public offering of stock at $6 per share. The stock has struggled ever since the IPO. The shares climbed 36 cents Monday to close at $1.99 on the Nasdaq Stock Market.

EDS shares went up $1.16 Monday to close at $49.10 on the New York Stock Exchange.

In its early days, Loudcloud created a buzz largely by capitalizing on Andreessen's pedigree as a co-founder of Netscape Communications, which introduced the first commercial Web browser and opened the door for the dot-com mania of the late 1990s.

The initial enthusiasm for Loudcloud diminished as the company's losses continued to mount amid the dot-com meltdown. Loudcloud has lost $480 million since its inception, an uninterrupted run of red ink that finally persuaded the company's board to change directions.

"It's always tough to change," said Andreessen, Loudcloud's chairman and largest shareholder with a 14 percent stake in the company. "But if you are going to have a successful company, you have to adapt. You just have to roll with the punches."

The newly minted Opsware business will cater to EDS while also trying to persuade other corporate customers to buy its software.

Opsware will continue to be run by Andreessen and Ben Horowitz, who remains president and chief executive.

Most of Loudcloud's 380 employees won't be joining Opsware.

Loudcloud on Monday began to lay off 120 of its workers. Another 140 Loudcloud workers will join EDS when the sale is completed in September. EDS will also take over Web hosting duties for about 50 Loudcloud customers, including prominent companies such as Blockbuster and Ford Motor.

Opsware expects to employ about 100 workers, a far cry from the 628 workers on Loudcloud's payroll in April 2001 when the company still thought it would become a technology powerhouse by running Web sites for other businesses.

Ironically, Loudcloud set out to become "the EDS of the Internet," Andreessen said. Now, EDS will become Opsware's financial lifeline for the near future.

The software contract with EDS will account for most of Opsware's projected 2003 revenue of about $30 million. That's 46 percent below Loudcloud's 2001 sales of $56 million.