A local technology firm, after striking a deal with Columbia’s Sequoia Software Corp., is entering the lucrative applications service provider industry and potentially starting a new company.

E.magination network llc, a Baltimore Web development and interactive design firm, has leased its LiveFluence application to Sequoia Software.

The deal, which involves Sequoia Software paying initial fees of $1,500 for each of the 15 licensing agreements, marks e.magination’s first major deal for its applications service provider division.

“It’s a division now and it could turn into a new business,” said Brian Ocheltree, CEO of e.magination, which recorded about $7 million in sales in 1999 and is on pace to top $12 million this year.

The applications service provider industry is currently worth $300 million. Boston-based IDC, a technology research firm, projects the industry will generate more than $7 billion by 2004. Other research groups put that figure even higher.

The Yankee Group, a Boston research group, projects the industry will generate $11 billion by 2002.

ASP market

“Talk to anyone these days and they will tell you they want to be an ASP,” said Jason Goldberg, an analyst with Global Ventures in Phoenix, Ariz. “And there are reasons why that’s the case — they’re called dollars.”

The ASP model basically allows software to be leased from the host company for a monthly fee. Annapolis-based USinternetworking Inc. has been credited as one of the first companies to develop a successful ASP business model.

LiveFluence, which is a customer-relations application hosted by e.magination, allows users to interact with customers on a one-to-one basis in real time over the Internet.

Because the application is Web-based, users can access it from anywhere as long as they have access to the Internet.

As Ocheltree explained, companies will no longer be bound geographically when it comes to recruiting customer support staff.

Rick Faint, chief executive officer of Sequoia Software, said e.magination’s product will enhance the company’s customer service quite a bit. Sequoia Software will pay e.magination $150 per month for each user.

“LiveFluence gives Sequoia an easy to use, cost-effective tool for serving the needs of our customers who use the Web to communicate with our support personnel,” Faint said.

The deal with Sequoia makes sense for e.magination on a couple levels. The fact that Sequoia Software develops Internet portals for business-to-business clients using extensible markup language (XML) is a definite advantage, Ocheltree said.

“These guys are pioneers in XML,” Ocheltree said. “They not only will be using our applications to help them with customer support, but they will be acting as a reseller.”

Potential clients

Other local clients who are using LiveFluence and reselling it include SkynetWeb Ltd., of Baltimore, and e.ssociation llc, a Baltimore company with ties to e.magination.

Ocheltree declined to say how much any of the deals are worth for the 110-employee firm.

Ocheltree said e.magination has other deals in the works with potential clients and resellers — even one that would take them to Asia.

“We’re working with a firm to launch LiveFluence in [South] Korea,” he said. “The application would be the same, but in Korean.”

With the international ASP market expected to explode, according to industry research, timing appears to be in favor of e.magination’s movement into the sector.

As anyone who has used the Internet lately can attest, advertising seems to be everywhere online. At many Web sites, the first item to show up on the monitor is a banner advertisement, the little rectangle at the top of the screen selling anything from financial advice to Caribbean cruises. Ads often show up on the sides and at the bottom of the screen, and sometimes even pop up unbidden.

Today, two Baltimore companies are joining forces to grab a larger share of the Internet-advertising business. e.magination network llc , located in Canton, was already involved in several different aspects of online marketing, including consulting and the development of Web-site features such as archives and the “shopping carts” where users can keep track of the items bought on a given visit.

However, e.magination did relatively little banner-ad business.

That’s why it’s merging with downtown-based GoldNet Marketing, a company that focuses on such work. The merger is effective immediately; the combined company will operate under the e.magination name.

GoldNet’s two top officials, President John Zocco, 26, and Chief Executive Officer Jason Goldsmith, 24, will together get up to 10 percent ownership of e.magination, depending on their division’s financial performance over the next year and a half.

When asked if he’s nervous about racking up enough sales to gain the equity share, Zocco said, “We think that this is going to be challenging in a way, but we’re very excited and very confident it’s going to happen.”

GoldNet, which was founded in 1997 and has 10 employees, had about $3 million in sales last year, including accounts with some high-profile Web sites such as Priceline.com. e.magination, which counts the Department of Justice and Sylvan Learning Systems Inc. among its clients, has 70 workers and had 1999 sales of roughly $8 million.

e.magination Chairman Bruce R. Spector, 47, a veteran of the cable-television and radio industries, said price margins in GoldNet’s industry are far lower than those in the Web-site-development industry where e.magination dwells.

Spector said this is why GoldNet could get only 10 percent of the combined company when it accounts for about one-third of projected sales.

Spector expects the newly combined companies to each double their sales from last year.

To accommodate the anticipated growth, e.magination is looking for 30,000 to 50,0000 square feet of office space in Baltimore.

Spector said more mergers or acquisitions are “absolutely” in the works for e.magination, but he was less committal about the likelihood of an initial public offering.

“There’s nothing in the works,” said Spector. “A lot of companies do an IPO because they need the money, but we’re already profitable.”

Gary H. Arlen, an interactive-media analyst based in Bethesda, said big national advertising firms are gobbling up ever-larger shares of the Internet advertising pie.

However, he added that there is still plenty of room for smaller companies like e.magination.

“As the Net keeps finding new life — there could still be room for regional players,” said Arlen.

“The market is going to continue to get larger, no question about it.”

Bruce R. Spector has helped build businesses in cable television and radio. So, where does a late-1990s communications entrepreneur like him look for a new opportunity?

Go ahead and guess. It starts with an “I” and ends — at least in theory — with a big fat dollar sign. “Our region is really a hotbed for Internet development,” said Spector, who sold his acquisitive Baltimore-based radio company, Benchmark Communications, in 1997 for $173 million.

“What Silicon Valley is to software, our region, I think, is to Internet development.”

Spector is trying to tap that Internet expertise through the merger of two mid-Atlantic region Web design companies, E.magination Network LLC of Baltimore and BSO Associates Inc. of Washington. Spector is chairman of the new company, which inherits the E.magination name.

The new company has headquarters at the American Can Co. building in Canton and has 50 employees, about half of whom are based in Maryland.

Spector said E.magination will give other companies the funding and expertise to set up electronic commerce sites on the Web. In return, E.magination gets a share of the client’s electronic commerce revenue. Spector said his new company has retail clients, but he declined to identify them.

E.magination plans to start Web sites of its own, separate from the sites it develops for clients.

Spector said his new company has no plans to go public.

Last year, E.magination came close to joining with another Baltimore-based company, Gr8 Inc.. That deal fell through because it called for E.magination founder Syd Rubin to leave the company.

E.magination’s employees objected to Rubin’s departure, so the deal was scrapped and Rubin stayed with E.magination. He remains with the company as its president.

“It sort of had me rethinking everything,” Rubin said of the uncertainty surrounding the proposed Gr8 merger. “It was like driving away and leaving my baby.”

Baltimore-based radio company Benchmark Communications will announce today that it has agreed to be acquired by a Dallas merchant banking group for $173 million. Benchmark’s 32 radio stations throughout the Southeast will be sold to Capstar Broadcasting Partners, a holding company set up by the investment firm Hicks, Muse, Tate & Furst, Benchmark general partner Bruce R. Spector said yesterday.

Benchmark owns two stations in Maryland, both in Salisbury: country station WWFG-FM and modern rock outlet WOSC-FM. Eight people work in the chain’s Baltimore headquarters, which will continue to run the company’s stations, and 29 work in Salisbury.

The deal, which is expected to close in June, will give Capstar a total of 103 stations. It wants to build a network in midsized markets, and has announced plans to spend $550 million on radio station acquisitions.

The 5-year-old Benchmark had hoped to find a merger partner about its own size and then take the merged company public. But a weak market for radio stocks in the second half of 1996 held down the price Benchmark could expect in an initial public offering.

Another factor weighing against an IPO was a federal regulation U that would have required the existing owners of Benchmark to hold their shares for two years after an offering, Spector said.

While the company mulled its future, Capstar approached Benchmark and, after initial resistance, made its offer too attractive to refuse.

“The radio stocks have been trading down since June, when we put the [IPO] plan together,” Spector said. “The best we could do was [sell shares for] 10 times our annual cash flow.”

The sale price works out to 12 times Benchmark’s annual cash flow, Spector said. “Economically, it became a clear choice about what was better,” he said.

Cash flow is the company’s profit before payments on its debt and noncash charges such as depreciation. Benchmark’s cash flow is about $14 million annually, Spector said.

Radio stocks in general had been beaten up after the news in June that Westinghouse Electric Corp. would acquire Infinity -Z Broadcasting Corp.

That deal sparked fears that the U.S. Justice Department might stop mergers that threatened to give a single company control of more than half of the radio advertising market in a given city, Spector said, and let the air out of radio stocks that had been bid up in anticipation of more mergers.

But industry experts said Benchmark had its individual problems as well.

The company did not own enough stations in most of its markets to become the dominant player in local radio advertising, one competitor said privately, and not everyone was sold on the potential of smaller Southeast markets such as Montgomery, Ala., Greenville/Spartanburg, S.C., and Jackson, Miss., where Benchmark’s stations are concentrated.

But that did not deter Capstar, a company Hicks Muse set up in May.

Capstar officials could not be reached for comment yesterday, but the company already has a lock on a handful of stations in southeastern markets like Jacksonville, Fla., and Raleigh, N.C., thanks to earlier deals, and pursued Benchmark in a bid to build up its presence in the Southeast.

“They’re going to be the middle- and small-market radio consolidators from coast to coast,” said Joseph L. Mathias IV, Benchmark’s other general partner. “They’re really the radio Wal-Mart. These guys have the capital to be the leading radio operator in smaller towns and cities across the U.S.”

Nonetheless, one leading radio-industry observer called the deal a surprise.

“The reason I’m surprised is that I thought they had done a very good job positioning themselves as an independent player,” said James H. Duncan Jr., publisher of Duncan’s American Radio Inc., an Indianapolis-based industry trade paper. “It must have gotten to the point where the amount of money being offered was irresistible.”

Duncan said the price was above average for a small-market deal. But he said it was not out of line because Benchmark stations serve several fast-growing regional markets.

Benchmark was built by Spector and Mathias, who previously worked together at a cable television company. The pair began buying radio stations in 1990 and formed Benchmark in 1991.

Spector declined to say how much money Benchmark and its limited partners, several of them investment bankers at Alex. Brown Inc., made on the sale. He said Benchmark had little debt because its owners financed Benchmark’s growth mostly with their own money and by investing profits from some stations in buying new outlets.

Benchmark had previously sold two Virginia stations, in Richmond and Norfolk, for about $30 million.

All but one of Benchmark’s Maryland-based employees — Spector himself — will stay with the company. Mathias will be president of Benchmark as it becomes a Capstar subsidiary. “I’m going to be going forward with the company and I’m glad about that,” he said.

Spector said he would consider other investments in telecommunications businesses.

“I’m not a broadcaster, I’m an investor,” the lawyer-turned-entrepreneur said. “I think it’s time for me to invest in another industry.”

Benchmark Communications of Baltimore will announce today that it has agreed to buy two radio stations in Alabama’s capital city, bringing to 34 the number of stations the fast-growing local group either owns or has a contract to buy. The local company will buy WZHT-FM and WMCZ-FM, both in Montgomery, Ala., from a group of Mississippi-based investors, Benchmark general partner Bruce Spector said. Both stations use an urban music format, performed mostly by black artists and targeted to a mostly black audience.

The price, based on an undisclosed formula in the contract, is expected to be $17.75 million, Spector said. The deal follows Benchmark’s deals in the past two months to buy stations in Jackson, Miss., and in Columbia, S.C., both of which are state capitals.

“State capitals are very stable markets because of the state governments,” Spector said. “If you pick up a map, Montgomery and Jackson are close together, they both have the same format. I’m excited by the idea of having the No. 1 station in three markets, all of which are urban.”

The deal continues Benchmark’s push to take advantage of the federal telecommunications law passed in February, which increases the number of stations a single owner can control in a single metropolitan market. The deal will give Benchmark a 28 percent share of radio advertising in Montgomery, the nation’s 109th-biggest radio market ranked by revenue, Spector said.

The company’s consolidation strategy reflects an industry trend that has taken off this year. BIA Publications Inc., a Virginia firm that gathers and sells data on the radio industry, said 1,836 U.S. stations have been sold for a total of $13.1 billion since the law was signed by President Clinton on Feb. 8.

By controlling several stations in one place, new owners can cut costs by merging sales and administrative staffs, and can also use stations with higher ratings to promote weaker performers. Both strategies help the buyers make bigger profits than the previous owners when they work, and Benchmark is betting they can work even across metropolitan lines when stations in different cities use the same programming format.

“You can share a lot of programming and consulting advice, and sales-wise you can do a lot,” Spector said. “You can go to an advertiser and offer them the same demographics in one market and in a neighboring market. Very few major businesses serve only one market anymore.”

Benchmark will own stations in 10 markets, almost all in the southern United States, when the Montgomery deal closes, which is expected around February. The firm has focused on small markets both to avoid direct competition with much larger players that are consolidating the ownership of big-city radio stations and because it thinks most southern markets will grow faster in coming years than mature markets around major cities.

Spector has said the company would like to go public soon, but it wants first to acquire or merge with another company.

Benchmark Communications of Baltimore yesterday closed a deal to buy its sixth radio station in two weeks, agreeing to pay $4.1 million for WSCQ-FM in Columbia, S.C. The adult standards station will be Benchmark’s fifth property in that market.

Benchmark, like most radio companies, has been on a buying binge since the new telecommunications law dropped limits on how many stations a single company can own and loosened rules on how many stations a single player can own in one market.

This month, Benchmark said it would pay nearly $15 million for four stations in Jackson, Miss., the nation’s 118th-largest radio market, and paid $1.9 million for a station in Shreveport, La.

“There are fewer radio stations in southern markets,” Benchmark general partner Bruce R. Spector said. “This makes us the first operation in the market to have three FMs. It affects both revenue and expenses. It’s easier to save if you can operate them all in one building with one staff. The more subtle effect is on the revenue side.”

Having a lot of stations in one market helps each station sell more advertising, he said, because it allows the owner to cover a wide range of formats in one market. Also, a profitable group of stations gives an owner the room to risk programming changes at weaker-performing outlets, he said.

That basic logic has led to deals as big as the $3.9 billion purchase of Infinity Broadcasting Corp. by Westinghouse Electric Corp.’s radio unit. Benchmark is one of several companies attempting the same consolidation play in smaller markets, where they don’t have to compete with giants, said James H. Duncan Jr., publisher of Duncan’s American Radio Inc. in Indianapolis.

“The strategy throughout the industry is to build your portfolio within each market to the extent the law allows,” Duncan said. “In the top 10 markets, it takes enormous amounts of money, even billions.”

Benchmark, which owns WWFG and WOSC on Maryland’s Eastern Shore, concentrates on southern markets that it says are smaller but growing faster than major markets like New York, Chicago or Detroit. The company now has 33 stations in nine markets and annual revenues of about $45 million.

Benchmark Communications of Baltimore yesterday closed a deal to buy its sixth radio station in two weeks, agreeing to pay $4.1 million for WSCQ-FM in Columbia, S.C. The adult standards station will be Benchmark’s fifth property in that market.

Benchmark, like most radio companies, has been on a buying binge since the new telecommunications law dropped limits on how many stations a single company can own and loosened rules on how many stations a single player can own in one market.

This month, Benchmark said it would pay nearly $15 million for four stations in Jackson, Miss., the nation’s 118th-largest radio market, and paid $1.9 million for a station in Shreveport, La.

“There are fewer radio stations in southern markets,” Benchmark general partner Bruce R. Spector said. “This makes us the first operation in the market to have three FMs. It affects both revenue and expenses. It’s easier to save if you can operate them all in one building with one staff. The more subtle effect is on the revenue side.”

Having a lot of stations in one market helps each station sell more advertising, he said, because it allows the owner to cover a wide range of formats in one market. Also, a profitable group of stations gives an owner the room to risk programming changes at weaker-performing outlets, he said.

That basic logic has led to deals as big as the $3.9 billion purchase of Infinity Broadcasting Corp. by Westinghouse Electric Corp.’s radio unit. Benchmark is one of several companies attempting the same consolidation play in smaller markets, where they don’t have to compete with giants, said James H. Duncan Jr., publisher of Duncan’s American Radio Inc. in Indianapolis.

“The strategy throughout the industry is to build your portfolio within each market to the extent the law allows,” Duncan said. “In the top 10 markets, it takes enormous amounts of money, even billions.”

Benchmark, which owns WWFG and WOSC on Maryland’s Eastern Shore, concentrates on southern markets that it says are smaller but growing faster than major markets like New York, Chicago or Detroit. The company now has 33 stations in nine markets and annual revenues of about $45 million.

Fast-growing Benchmark Communications is adding to its radio-station collection, agreeing to buy five more stations for $16.9 million, officials said yesterday, and coming close to cementing several other deals. In two separate transactions, Benchmark agreed to buy four urban-format stations in Jackson, Miss., for $15 million, and a country station in Shreveport, La., for $1.9 million.

Once a cable-TV operator, Benchmark since 1991 has seized on federal radio deregulation by assembling a portfolio of 32 stations in nine markets, counting the Jackson and Shreveport properties.

It hadn’t been in Jackson before.

“The industry’s consolidating like crazy,” said Bruce R. Spector, general partner of the Baltimore-based firm.

“What’s happening to our company is just a small picture of what’s happening to media in general, and many markets are being reduced from many operators to two or three.”

Before 1992, no company could own more than one AM and one FM station in each market, and the Federal Communications Commission limited how many stations one entity could own nationwide, too.

Now, as the government opens all forms of telecommunica- tions to more competition, radio operators can own as many stations as they want nationally and five or more in even small cities. Buyers have been snapping up stations and consolidating their ad staffs, engineering staffs and other overhead.

Benchmark, which operated cable-TV systems in Loudon County and other Northern Virginia areas in the 1980s, has joined the buying spree, focusing on small and medium-size markets including Roanoke, Va., Dover, Del., and Winchester, Va.

Benchmark also owns WWFG and WOSC, stations serving Salisbury and Ocean City in Maryland.

With about $45 million in annual sales, Benchmark “is not a very large player, but that doesn’t mean there isn’t room for them in smaller markets,” said Lucia Cobo, editor in chief of Radio World, a trade newspaper based in Falls Church, Va. Clear Channel Communications of San Antonio has the most U.S. stations, with well over 100, she said.

Benchmark contracted to buy the four Jackson stations from Chrysler Capital, which had foreclosed on previous owners. The stations are: WJMI-FM, WKXI-FM, WKXI-AM and WOAD-AM. The FM Shreveport station, with a new license and no assigned call letters yet, is owned by Port City Communications of Shreveport.

Both deals require FCC approval and are expected to take a few months to complete. Each will be financed with Benchmark’s existing line of credit, but the company has been considering raising capital with a public stock offering, which could happen later this year or early next, Spector said.

Selling stock “is something that radio groups have discovered in the last couple of years,” Cobo said.

“You’ve seen a few of them go out and try it, but it hasn’t really taken off.”

Benchmark likes smaller markets because costs are lower, because they’re often growing faster economically and because under the new rules one player can sometimes own half the stations in one city, said Spector, a former partner with Venable Baetjer and Howard, the Baltimore law firm.