Koz.com knows that what's junk to some may be gold to others. In this case, Koz has discovered a nugget of gold in iChat, a software product line that provides real-time chat, message boards, and instant messaging.

Koz has fashioned itself as a "Community Publishing System" software provider. The company helps local media, primarily newspapers, reinforce their local brands through offering online community services.

But while Koz is still just getting started in the online community market, Acuity, the seller of iChat, is trying its hardest to leave it behind. Acuity, named iChat until last year and best known for this widely distributed Internet product, realized as far back as the second quarter of 1998 that it wanted to escape from the consumer chat software business.

FOOL'S GOLD?"In Q3 of 1997, when iChat was at its peak in terms of awareness ... we knew internally that it was a dead market," says Mark Saul, CEO of Acuity.

The market shrank as Web sites began to discover that unless they had enormous traffic, the number of chatters who logged on were not worth the expense. While Yahoo (YHOO) had plenty of users, not many other Web sites did.

Users provide the real value in the online community business, but concerns over privacy at the time kept iChat from obtaining and keeping demographic information on these users. "The fundamental value proposition was challenged," says Mr. Saul.

"The fundamental issue was that you have to give away the software for free and try to make money on the users," recalls Peter Friedman, the CEO of TalkCity.

Moreover, Mr. Friedman believes that iChat's market was also minimized by their potential customers' sudden desire to partner and outsource community rather than just buying software, which takes time and money to manage. "There is more outsourcing money than buying money out there," says Mr. Friedman.

Koz's vice president of marketing, Bruce Milligan, notes that while Koz will be acquiring the iChat assets, it will not be acquiring its business model.

KOZ THEY'VE GOT BUCKSMr. Saul says that, in the end, Acuity decided it no longer wanted to divide its resources between iChat and its newer WebCenter software, an enterprise solution for Web-based customer interaction. When the decision was made, Acuity had two basic requirements for potential iChat acquirers: The new owner had to be able to support iChat's existing customers long term, and also had to purchase at least part of the company with cash.

With more than $20 million in private equity funding from investors including CMGI's (CMGI) @Ventures, Southeast Interactive, and BancBoston Robertson Stephens, Koz was able to meet these requirements.

And Mr. Saul felt sure that iChat customers weren't getting short-changed. "The vertical focus of the publishing world is where chat will succeed," says Mr. Saul. "And they are passionate."

Koz paid an undisclosed combination of stock and cash in the deal. Mr. Saul would say merely that Acuity now owns only a tiny piece of Koz. In return, Koz will acquire the iChat products' software code, the rights to service 500,000 members of iChat's Pager instant messaging service, 2,100 corporate clients, the consumer and corporate sales prospect databases, and iChat's database of nearly 2 million opt-in e-mail addresses.

Mr. Milligan says that while Koz plans to continue to focus on local media companies and use iChat's assets to enhance its current offerings, it also is excited about the prospect of adding a potential second market to the business model: the iChat customer.

"We would like to enlighten those companies that there is more they can get than just text-based communities," says Mr. Milligan.

Koz currently has 14 daily and 80 weekly newspaper clients with whom it shares ad revenues, on top of licensing and hosting fees. It intends to ramp up to 150 daily newspaper sites, begin e-commerce initiatives, and enjoy a "liquidity event" by the end of this year.